<PAGE> 1
File Nos. 2-66906 and 811-03006.
As filed with the Securities and Exchange Commission on June 14, 1995.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
----
Pre-Effective Amendment No. __ / /
----
Post-Effective Amendment No. ___ / /
----
(Check appropriate box or boxes)
JOHN HANCOCK BOND FUND
---------------------------------------------------
(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
-------------------------------------------------------------------
(Address of principal executive office) Zip Code
(617) 375-1700
-------------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
With a copy to:
---------------------
Thomas H. Drohan, Esq. Jeffrey N. Carp, Esq.
John Hancock Advisers, Inc. Hale and Dorr
101 Huntington Avenue 60 State Street
Boston, MA 02199 Boston, MA 02109
-------------------------------------------------------------------
(Name and address of agent for service)
Approximate Date of Proposed Public Offering: As soon as
practicable after the effectiveness of the registration
statement.
No filing fee is required because an indefinite number of shares
have previously been registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. This Registration
Statement relates to shares previously registered on Form N-1A
(File Nos. 2-66906 and 811-03006).
It is proposed that this filing will become effective on July 14,
1995 pursuant to Rule 488 under the Securities Act of 1933.
<PAGE> 2
JOHN HANCOCK BOND FUND
on behalf of
John Hancock Intermediate Maturity Government Fund
(formerly, John Hancock Adjustable U.S. Government Trust)
<TABLE>
CROSS-REFERENCE SHEET
Items Required by Form N-14
---------------------------
PART A
- ------
<CAPTION>
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Beginning of Registration COVER PAGE OF REGISTRATION
Statement and Outside Front STATEMENT; FRONT COVER PAGE OF
Cover Page of Prospectus PROSPECTUS
2. Beginning and Outside Back TABLE OF CONTENTS
Cover Page of Prospectus
3. Synopsis and Risk Factors SUMMARY; RISK FACTORS AND SPECIAL
CONSIDERATIONS
4. Information About the INFORMATION CONCERNING THE MEETING;
Transaction PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION;
CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE: INTRODUCTION;
Registrant SUMMARY; BUSINESS OF INTERMEDIATE MATURITY FUND
6. Information About the PROSPECTUS COVER PAGE: INTRODUCTION;
Company Being Acquired SUMMARY; BUSINESS OF U.S. GOVERNMENT
TRUST
7. Voting Information PROSPECTUS COVER PAGE; NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS;
SUMMARY; INFORMATION CONCERNING THE
MEETING
8. Interest of Certain Persons NONE
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be
Underwriters
</TABLE>
<PAGE> 3
<TABLE>
PART B
- ------
<CAPTION>
Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ -----------------------
<S> <C> <C>
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION ABOUT
About the Registrant INTERMEDIATE MATURITY FUND
13. Additional Information About ADDITIONAL INFORMATION ABOUT
the Company Being Acquired U.S. GOVERNMENT TRUST
14. Financial Statements ADDITIONAL INFORMATION ABOUT
INTERMEDIATE MATURITY FUND; ADDITIONAL INFORMATION ABOUT
U.S. GOVERNMENT TRUST; PRO FORMA COMBINED FINANCIAL
STATEMENTS
<CAPTION>
PART C
- ------
Item No. Item Caption
- -------- ------------
<S> <C> <C>
15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
</TABLE>
-2-
<PAGE> 4
John Hancock Funds Letterhead
July 21, 1995
U.S. GOVERNMENT TRUST
Dear Fellow Shareholder:
As you may know, your mutual fund was one of 17 former
Transamerica Funds recently brought into the John Hancock
family of funds. We feel this now presents an opportunity
to combine the money management efforts serving your
investment with those of a similar mutual fund. For this
reason, a special meeting of shareholders will be held in
September to vote on A PROPOSED MERGER OF YOUR FUND, JOHN
HANCOCK U.S. GOVERNMENT TRUST, INTO A SIMILAR FUND.
WHAT IS THE NAME OF THIS SIMILAR FUND?
Currently, it is known as John Hancock Adjustable U.S.
Government Trust.
The Board of Trustees has proposed changes to the investment
objective and policies of that fund that will position it as an
intermediate maturity government fund. ITS NAME WILL BE CHANGED TO
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND. However, IF
THAT FUND'S SHAREHOLDERS DO NOT APPROVE THE PROPOSED CHANGES, THE
MERGER OF YOUR FUND WILL NOT PROCEED AS DESCRIBED.
YOUR BOARD OF TRUSTEES BELIEVES THAT THIS MERGER IS
APPROPRIATE BECAUSE BOTH FUNDS PURSUE A SIMILAR
INVESTMENT OBJECTIVE. This merger should benefit you in two
ways:
1. LOWER FUND EXPENSES. Your Trustees firmly believe
that combining these two funds may benefit shareholders by
allowing the Fund to capitalize on expected economies of
scale in investment research, operations and other
important areas. By merging to create a larger fund, your
investment may realize reduced expenses and, ultimately,
lower costs for you.
2. INCREASED INVESTMENT DIVERSIFICATION. By combining
both funds' assets into a single portfolio, the surviving
fund should be able to achieve greater diversification.
YOUR VOTE IS IMPORTANT!
Please take the time to read the enclosed materials,
then exercise your right as a shareholder and vote by
completing, signing and returning the enclosed proxy ballot
form to us immediately. Please vote promptly. It is
extremely important, no matter how many shares you own. It
will help avoid the necessity for additional mailings at
your Fund's expense. For your convenience, we have
provided a postage-paid envelope.
If you have questions, please call your Financial Advisor
or a John Hancock Funds Customer Service Representative at
1-800-225-5291, Monday through Friday between 8:00 A.M. and
8:00 P.M. Eastern time. Thank you for your prompt attention
to these important matters.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and CEO
Enclosure
<PAGE> 5
JOHN HANCOCK U.S. GOVERNMENT TRUST
101 Huntington Avenue
Boston, Massachusetts 02199
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 8, 1995
Notice is hereby given that a Special Meeting of Shareholders
(the "Meeting") of John Hancock U.S. Government Trust ("U.S.
Government Trust"), a series of John Hancock Bond Fund, a
Massachusetts business trust (the "Trust"), will be held at
101 Huntington Avenue, Boston, Massachusetts 02116 on Friday,
September 8, 1995 at 9:00 a.m., Boston time, and at any adjournment
thereof, for the following purposes:
1. To consider and act upon a proposal to approve an Agreement and
Plan of Reorganization between the Trust, on behalf of U.S.
Government Trust, and the Trust, on behalf of John Hancock
Intermediate Maturity Government Fund ("Intermediate Maturity
Fund") (formerly, John Hancock Adjustable U.S. Government
Trust), providing for the acquisition by Intermediate Maturity
Fund of all of the assets of U.S. Government Trust in exchange
solely for the assumption of U.S. Government Trust's liabilities
by Intermediate Maturity Fund and the issuance of Class A and
Class B shares of Intermediate Maturity Fund to U.S. Government
Trust for distribution to its Class A and Class B shareholders;
and
2. To consider and act upon such other matters as may properly come
before the Meeting or any adjournment thereof.
The Board of Trustees has fixed the close of business on July 14,
1995 as the record date for determination of shareholders who are
entitled to notice of and to vote at the Meeting and any adjournment
thereof.
If you cannot attend the Meeting in person, please complete,
date and sign the enclosed proxy and return it to John Hancock
Investor Services Corporation, 101 Huntington Avenue, Boston,
Massachusetts 02199 in the enclosed envelope. It is important that
you exercise your right to vote. THE ENCLOSED PROXY IS BEING
SOLICITED BY THE BOARD OF TRUSTEES OF JOHN HANCOCK U.S. GOVERNMENT
TRUST.
By order of the Board of Trustees,
THOMAS H. DROHAN, Secretary
Boston, Massachusetts
July 21, 1995
<PAGE> 6
JOHN HANCOCK U.S. GOVERNMENT TRUST
A SERIES OF
JOHN HANCOCK BOND FUND
PROXY STATEMENT
______________________
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
A SERIES OF
JOHN HANCOCK BOND FUND
PROSPECTUS
______________________
This Proxy Statement and Prospectus sets forth the information you
should know before voting on the proposed reorganization of John Hancock U.S.
Government Trust ("U.S. Government Trust") into John Hancock Intermediate
Maturity Government Fund ("Intermediate Maturity Fund") (formerly, John
Hancock Adjustable U.S. Government Trust ("Adjustable Government Trust")).
Please read it carefully and retain it for future reference. U.S. Government
Trust and Intermediate Maturity Fund are each series of John Hancock Bond Fund,
a Massachusetts business trust (the "Trust").
This Proxy Statement and Prospectus is accompanied by the Preliminary
Prospectus of John Hancock Intermediate Maturity Government Fund (formerly,
Adjustable Government Trust) for Class A and Class B shares, dated July ,
1995 and subject to completion. Information about U.S. Government Trust's
Class A and Class B shares is incorporated herein by reference to the U.S.
Government Trust Prospectus, dated May 15, 1995, which is available at no
charge upon request to Intermediate Maturity Fund at 1-800-225-5291.
A Statement of Additional Information dated July 14, 1995 relating to
this Proxy Statement and Prospectus, and containing additional information
about each of Intermediate Maturity Fund and U.S. Government Trust, including
historical financial statements, is on file with the Securities and Exchange
Commission ("SEC"). It is available, upon telephone request at no charge at
the toll-free number stated above, from Intermediate Maturity Fund. The
Statement of Additional Information is incorporated by reference into this
Prospectus.
<PAGE> 7
This Proxy Statement and Prospectus relates to Class A and Class B
shares of beneficial interest, par value of $0.01 per share (collectively, the
"Intermediate Maturity Fund Shares"), of Intermediate Maturity Fund which will
be issued in exchange for all of U.S. Government Trust's assets. In exchange
for these assets, Intermediate Maturity Fund will also assume all of the
liabilities of U.S. Government Trust.
The Intermediate Maturity Fund Class A Shares issued to U.S. Government
Trust for distribution to U.S. Government Trust's Class A shareholders will
have an aggregate net asset value equal to that of U.S. Government Trust's
Class A shares. The Intermediate Maturity Fund Class B Shares issued to U.S.
Government Trust for distribution to U.S. Government Trust's Class B share-
holders will have an aggregate net asset value equal to that of U.S. Government
Trust's Class B shares. The asset values of U.S. Government Trust and
Intermediate Maturity Fund will be determined at the close of business (4:00
p.m. Eastern Time) on the Closing Date (as defined below) for purposes of the
proposed reorganization.
Following the receipt of Intermediate Maturity Fund Shares (1) U.S.
Government Trust will be liquidated, (2) the Intermediate Maturity Fund Shares
will be distributed to U.S. Government Trust's shareholders pro rata in
exchange for their shares of U.S. Government Trust and (3) U.S. Government
Trust will be terminated. Consequently, Class A U.S. Government Trust
shareholders will become Class A shareholders of Intermediate Maturity Fund,
and Class B U.S. Government Trust shareholders will become Class B shareholders
of Intermediate Maturity Fund. These transactions are collectively referred to
in this Proxy Statement and Prospectus as the "Reorganization." The
Reorganization is being structured as a tax-free reorganization so that, in the
opinion of tax counsel, no gain or loss will be recognized by Intermediate
Maturity Fund, U.S. Government Trust or the shareholders of U.S. Government
Trust. The terms and conditions of this transaction are more fully described
in this Proxy Statement and Prospectus, and in the Form of Agreement and Plan
of Reorganization that is attached as EXHIBIT A.
Intermediate Maturity Fund is a diversified series of the Trust, an
open-end management investment company organized as a Massachusetts business
trust in 1984. In connection with the Reorganization, the Trustees have
proposed several matters for consideration by the shareholders of Intermediate
Maturity Fund including proposals to abolish the Fund's master/feeder structure
and to change the Fund's investment objective and an investment restriction to
permit the Fund to be managed as an intermediate maturity government fund
rather than as an adjustable rate government fund. The Trustees have also
approved the change of the Fund's name to: John Hancock Intermediate Maturity
Government
-2-
<PAGE> 8
Fund. If the shareholders of Intermediate Maturity Fund do not approve the
proposed changes, the transactions contemplated by the Reorganization will not
proceed as described.
Intermediate Maturity Fund seeks to achieve a high level of current
income, consistent with the preservation of capital and maintenance of
liquidity. Intermediate Maturity Fund seeks to obtain this objective by
investing at least 65% of the Fund's assets in U.S. Government securities,
including mortgage-backed securities issued by U.S. Government agencies;
Tennessee Valley Authority and World Bank obligations; and medium-term notes.
Under normal market conditions, the Fund maintains a weighted average maturity
or average life of three to ten years.
The principal place of business of both Intermediate Maturity Fund and
U.S. Government Trust is at 101 Huntington Avenue, Boston, Massachusetts 02199.
Their toll-free telephone number is 1-800-225-5291.
SHARES OF INTERMEDIATE MATURITY FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION, AND
THE SHARES OF INTERMEDIATE MATURITY FUND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement and Prospectus is July 14, 1995.
-3-
<PAGE> 9
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
INTRODUCTION............................................. 1
SUMMARY.................................................. 2
RISK FACTORS AND SPECIAL CONSIDERATIONS ................. 15
INFORMATION CONCERNING THE MEETING....................... 15
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION. 17
CAPITALIZATION........................................... 24
COMPARATIVE PERFORMANCE INFORMATION...................... 25
BUSINESS OF U.S. GOVERNMENT TRUST........................ 28
General............................................ 28
Investment Objective and Policies.................. 28
Portfolio Management............................... 28
Trustees........................................... 28
Investment Adviser and Distributor................. 28
Expenses........................................... 28
Custodian and Transfer Agent....................... 28
U.S. Government Trust Shares....................... 29
Purchase of U.S. Government Trust Shares........... 29
Redemption of U.S. Government Trust Shares......... 29
Dividends, Distributions and Taxes................. 29
BUSINESS OF INTERMEDIATE MATURITY FUND................... 29
General............................................ 29
Investment Objective and Policies.................. 29
Portfolio Management............................... 30
Trustees........................................... 30
Investment Adviser and Distributor................. 30
Expenses........................................... 30
Custodian and Transfer Agent....................... 30
Purchase of Intermediate Maturity Fund Shares...... 30
Redemption of Intermediate Maturity Fund Shares.... 31
Dividends, Distributions and Taxes................. 31
EXPERTS.................................................. 31
AVAILABLE INFORMATION.................................... 31
</TABLE>
-i-
<PAGE> 10
<TABLE>
EXHIBITS
<S> <C>
A - Form of Agreement and Plan of Reorganization by and
between John Hancock Bond Fund, on behalf of John
Hancock U.S. Government Trust, and John Hancock Bond
Fund, on behalf of John Hancock Adjustable U.S.
Government Trust (as proposed to be renamed, John
Hancock Intermediate Maturity Government Fund) (attached
to this document).
B - Preliminary Prospectus of John Hancock Intermediate
Maturity Government Fund (formerly, Adjustable
Government Trust) for Class A and Class B shares, dated
July , 1995 and subject to completion (included with
this document).
C - Annual Report to Shareholders of Adjustable Government
Trust, dated March 31, 1995 (included with this
document).
</TABLE>
-ii-
<PAGE> 11
PROXY STATEMENT AND PROSPECTUS
FOR SPECIAL MEETING OF SHAREHOLDERS OF
JOHN HANCOCK U.S. GOVERNMENT TRUST
TO BE HELD ON SEPTEMBER 8, 1995
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connec tion with
the solicitation of proxies by the Board of Trustees of U.S. Government Trust
(the "Board of Trustees"). The proxies will be voted at the Special Meeting of
Shareholders (the "Meeting") of U.S. Government Trust to be held at 101
Huntington Avenue, Boston, Massachusetts 02199 on Friday, September 8, 1995 at
9:00 a.m., Boston time, and at any adjournment or adjournments of the Meeting.
The purposes of the Meeting are set forth in the accompanying Notice of Special
Meeting of Shareholders.
This Proxy Statement and Prospectus includes and incorporates by
reference the Preliminary Prospectus of John Hancock Intermediate Maturity
Government Fund ("Intermediate Maturity Fund") (formerly, Adjustable Government
Trust) for Class A and Class B shares, dated July , 1995 and subject to
completion (the "Intermediate Maturity Fund Preliminary Prospectus"). The
Annual Report to Shareholders of Adjustable Government Trust, dated March 31,
1995, is included with this Proxy Statement and Prospectus. These materials
are being mailed to shareholders of U.S. Government Trust on or after July 21,
1995. Information about U.S. Government Trust is incorporated by reference to
the U.S. Government Trust Prospectus which is available upon request. U.S.
Government Trust's Annual Report to Shareholders was previously sent to
shareholders on or about May 31, 1995.
As of June 30, 1995, shares of beneficial interest of U.S.
Government Trust were outstanding. Shareholders of record on July 14, 1995
(the "Record Date") are entitled to notice of and to vote at the Meeting.
All properly executed proxies received by management prior to the
Meeting, unless revoked, will be voted at the Meeting according to the
instructions on the proxies. If no instructions are given, shares of U.S.
Government Trust represented by proxies will be voted FOR the proposal (the
"Proposal") to approve the Agreement and Plan of Reorganization (the
"Agreement") between the Trust, on behalf of U.S. Government Trust, and the
Trust, on behalf of Intermediate Maturity Fund.
The Board of Trustees knows of no business to be presented for
consideration at the Meeting other than that mentioned in the immediately
preceding paragraph. If other business is properly
<PAGE> 12
brought before the Meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
In addition to the mailing of these proxy materials, proxies may be
personally solicited by Trustees, officers and employees of U.S. Government
Trust; by personnel of U.S. Government Trust's investment adviser, John Hancock
Advisers, Inc., and its transfer agent, John Hancock Investor Services
Corporation ("Investor Services"); by broker-dealer firms; or by a professional
solicitation organization in person or by telephone. U.S. Government Trust and
Intermediate Maturity Fund (each, a "Fund" and collectively, the "Funds") will
each bear its own fees and expenses in connection with the Reorganization
discussed in this Proxy Statement and Prospectus.
The information concerning U.S. Government Trust and Intermediate
Maturity Fund in this Proxy Statement and Prospectus has been supplied by the
Trust.
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement and Prospectus. The summary is qualified by reference
to the more complete information contained in this Proxy Statement and
Prospectus, and in the EXHIBITS attached to or included with this document.
Please read this entire Proxy Statement and Prospectus carefully.
REASONS FOR THE PROPOSED REORGANIZATION
The Trust's Board of Trustees has determined that the pro posed
Reorganization is in the best interests of U.S. Government Trust and its
shareholders. In making this determination, the Trustees considered several
relevant factors, including (1) the fact that the investment objectives and
policies of U.S. Government Trust and Intermediate Maturity Fund are
substantially similar, (2) the likelihood that the Reorganization will result
in improved economies of scale and a corresponding decrease in the expenses
currently borne by U.S. Government Trust, and consequently its shareholders and
(3) the fact that combining the Funds' assets into a single portfolio will
enable Intermediate Maturity Fund to achieve greater diversification than U.S.
Government Trust is now able to achieve. The Board of Trustees believes that
the Intermediate Maturity Fund Shares received in the Reorganization will
provide existing U.S. Government Trust shareholders with substantially the same
investment advantages that they currently enjoy at a comparable level of risk.
Shareholders of both Funds may benefit from a fund offering greater
diversification in its investment portfolio as a result of the larger asset
base. Greater diversification may reduce the
-2-
<PAGE> 13
negative effect which the adverse performance of any one security may have on
the performance of the entire portfolio. For a more detailed discussion of the
reasons for the proposed Reorganization, see "Proposal to Approve the Agreement
and Plan of Reorganization--Reasons For The Proposed Reorganization."
<TABLE>
THE FUNDS' EXPENSES
Both Funds and their shareholders are subject to various fees and
expenses. The two tables set forth below show the operating expenses of Class
A and Class B shares of the Funds and the effect of applicable expense
limitations. These expenses are based on fees and expenses incurred during the
Funds' most recently completed fiscal years.
U.S. GOVERNMENT TRUST
<CAPTION>
Class A Class B
Shares Shares
------- -------
<S> <C> <C>
ANNUAL FUND OPERATING
EXPENSES (as a
percentage of
average net assets)
Management Fees......... 0.65% 0.65%
Rule 12b-1 Fees......... 0.25% 1.00%
Other Expenses*......... 0.69% 0.69%
TOTAL FUND OPERATING
EXPENSES.............. 1.59% 2.34%
<FN>
* Other expenses include transfer agency, custodial, auditing, trustees,
printing, registration, legal fees and miscellaneous expenses.
</TABLE>
-3-
<PAGE> 14
<TABLE>
INTERMEDIATE MATURITY FUND
<CAPTION>
WITHOUT GIVING EFFECT AFTER GIVING EFFECT
TO EXPENSE LIMITATION TO EXPENSE LIMITATION
Class A Class B Class A Class B
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of
average net assets)
Management Fees...... 0.40% 0.40% 0.40% 0.40%
Administration Fee... 0.10% 0.10% 0.10% 0.10%
Rule 12b-1 Fees...... 0.25% 0.90%* 0.25% 0.90%*
Other Expenses**..... 0.75% 0.75% 0.75% 0.75%
Expense Reduction by
Adviser............ (0.00)% (0.00)% (0.75)% (0.75)%
----- ----- ----- -----
TOTAL FUND OPERATING
EXPENSES........... 1.50% 2.15% 0.75% 1.40%
==== ==== ==== ====
<FN>
- --------------------
* Reflects John Hancock Funds agreement to limit Class B Rule
12b-1 fees to 0.90% of average annual net assets.
** Other expenses include transfer agency, custodial, auditing,
trustees, printing, registration, legal fees and
miscellaneous expenses.
</TABLE>
Intermediate Maturity Fund incurred expenses which are included in the
expense ratios indirectly through the Fund's investment in the master fund.
INTERMEDIATE MATURITY FUND (PRO FORMA)
The table set forth below shows the pro forma operating expenses of
Class A and Class B shares of Intermediate Maturity Fund which assume that the
Reorganization took place on March 31, 1994. These expenses are based on fees
and expenses incurred during the Funds' most recently completed fiscal years.
-4-
<PAGE> 15
<TABLE>
<CAPTION>
WITHOUT GIVING EFFECT AFTER GIVING EFFECT
TO EXPENSE LIMITATION TO EXPENSE LIMITATION
Class A Class B Class A Class B
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of
average net assets)
Management Fees...... 0.40% 0.40% 0.40% 0.40%
Rule 12b-1 Fees...... 0.25% 0.90%* 0.25% 0.90%*
Other Expenses**..... 0.65% 0.65% 0.65% 0.65%
Expense Reduction
by Adviser.......... (0.00)% (0.00)% (0.55)% (0.55)%
TOTAL FUND OPERATING
EXPENSES........... 1.30% 1.95% 0.75% 1.40%
<FN>
- ------------------
* Reflects John Hancock Funds agreement to limit Class B Rule
12b-1 fees to 0.90% of average annual net assets.
** Other expenses include transfer agency, custodial, auditing,
trustees, printing, registration, legal fees and miscellaneous expenses.
</TABLE>
If the Reorganization is consummated, the actual total operating
expenses of Class A and Class B shares of Intermediate Maturity Fund may vary
from the pro forma operating expenses indicated above due to changes in the net
asset value of Intermediate Government Trust and/or Intermediate Maturity Fund
between March 31, 1995 and the Closing Date (defined below).
THE FUNDS' INVESTMENT ADVISER
John Hancock Advisers, Inc. (the "Adviser") acts as invest ment adviser
to both Funds.
BUSINESS OF U.S. GOVERNMENT TRUST
U.S. Government Trust is a diversified series of the Trust, an open-end
management investment company organized as a Massachusetts business trust in
1984. As of March 31, 1995, U.S. Government Trust's net assets were
$17,780,907. All investment decisions for U.S. Government Trust are made by a
committee comprised of investment professionals employed by the Adviser, and no
single person is primarily responsible for making recommendations to the
committee.
-5-
<PAGE> 16
BUSINESS OF INTERMEDIATE MATURITY FUND
Intermediate Maturity Fund is also a diversified series of the Trust.
As of March 31, 1995, Intermediate Maturity Fund's net assets were $22,455,416.
All investment decisions for Intermediate Maturity Fund are made by a committee
comprised of investment professionals employed by the Adviser, and no single
person is primarily responsible for making recommendations to the committee.
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF U.S.
GOVERNMENT TRUST AND INTERMEDIATE MATURITY FUND
U.S. GOVERNMENT TRUST: The investment objective of U.S. Government
Trust is to achieve a high level of current income, consistent with safety of
principal. The Fund invests primarily in U.S. Government securities, with an
emphasis on mortgage-backed securities issued by U.S. Government agencies. The
Fund may invest in mortgage-related derivatives, including ("collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities ("SMBS").
The Fund may also invest in asset-backed securities, enter into mortgage dollar
rolls and reverse repurchase agreements and purchase options on debt securities,
interest rate futures contracts and options on these futures.
INTERMEDIATE MATURITY FUND: The investment objective of Intermediate
Maturity Fund is to achieve a high level of current income, consistent with
preservation of capital and maintenance of liquidity. The Fund invests at least
65% of its assets in U.S. Government securities, including mortgage-backed
securities issued by U.S. Government agencies; Tennessee Valley Authority and
World Bank obligations; and medium-term notes. Under normal market conditions,
the Fund maintains a weighted average maturity or average life of three to ten
years. The Fund invests in mortgage- related derivatives, including CMOs and
SMBS. It may also invest in asset-backed securities collateralized by U.S.
Government securities, enter into mortgage dollar rolls and engage in hedging
transactions in futures contracts and options on these futures.
U.S. Government Trust's investment objective is fundamental and may not
be changed without shareholder approval. Intermediate Maturity Fund's investment
objective is non-fundamental and may be changed by a vote of the Fund's Board of
Trustees. Prior to the implementation of a change to the Fund's investment
objective, the Fund's prospectus and statement of additional information will be
revised or supplemented.
In considering whether to approve the Reorganization, you should
consider the differences between the two Funds' investment objectives and
policies. For a discussion of the risks associated
-6-
<PAGE> 17
with an investment in the Funds, see "Risk Factors and Special Considerations."
<TABLE>
<CAPTION>
U.S. GOVERNMENT ADJUSTABLE GOVERNMENT
TRUST TRUST
<S> <C> <C>
Investment
Objective: Objective is to achieve Objective is to achieve
a high level of current a high level of current
income, consistent with income, consistent with
safety of principal. the preservation of capital
and maintenance of
liquidity.
Primary
Investments: At least 80% of the At least 65% of the
Fund's total assets Fund's assets are
are invested in invested in U.S.
U.S. Government Government securities,
securities, with including mortgage-
emphasis on mortgage backed securities issued
backed securities by U.S. Government
issued by U.S. agencies; Tennessee
Government agencies. Valley Authority and World
At least 65% of the Bank obligations; and
Fund's assets are medium-term notes. Under
invested in obliga- normal market conditions,
tions issued by the the Fund maintains a
Government National weighted average maturity
Mortgage Association or average life of
("GNMA"). three to ten years.
Other
Investments: The Fund may invest up The Fund may invest
to 10% of its total in illiquid, restricted
assets in illiquid and Rule 144A securities,
securities, enter into subject to a 15% limit on
repurchase agreements, illiquid investments. The
purchase securities on a Fund may enter into
forward commitment or repurchase agreements,
when-issued basis, lend purchase securities on a
portfolio securities and forward commitment or when
enter into a reverse issued basis, lend portfolio
repurchase agreements. securities and enter into
reverse repurchase
agreements.
</TABLE>
-7-
<PAGE> 18
<TABLE>
<S> <C> <C>
Permitted
Transactions in
Derivative
Instruments: The Fund may invest in The Fund may invest in
mortgage-related mortgage-related
derivatives, including derivatives, including
up to 10% of the CMOs and SMBS. The
Fund's total assets in Fund may also invest in
CMOs and SMBS. The asset-backed securities
Fund may also invest collateralized by U.S.
in asset-backed Government securities,
securities, enter into enter into mortgage
mortgage dollar rolls, dollar rolls and
and reverse repurchase hedging transactions
agreements and exchange- in futures contracts
traded options on debt and options on these
securities, interest futures.
rate futures contracts
and options on these
futures.
Diversification
and Industry
Concentration: The Fund is diversified The Fund is diversified
and does not concentrate and does not concentrate
more than 25% of its more than 25% of its
assets in any one assets in any one
industry. industry.
</TABLE>
FORM OF ORGANIZATION
U.S. Government Trust and Intermediate Maturity Fund are two separate
series of the Trust, a Massachusetts business trust organized in 1984. Both
Funds have authorized and outstanding two classes of shares: Class A and
Class B.
Each share of a series of the Trust represents an equal proportionate
interest in the assets belonging to that series. The liabilities attributable
to each series are not charged against the assets of the other series of the
Trust. Shares of each series and the other series of the Trust are voted
separately with respect to matters pertaining to that series, but all shares
vote together for the election of Trustees and the ratification of independent
accountants.
The shares of each class of U.S. Government Trust and Intermediate
Maturity Fund represent an interest in the same portfolio of investments of that
Fund. Except as stated below, each class of each Fund has equal rights as to
voting, redemption,
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<PAGE> 19
dividends and liquidation. Each class bears different distribu tion and
transfer agent fees and may bear other expenses properly attributable to that
class. Class A and Class B shareholders of each Fund have exclusive voting
rights with regard to the Rule 12b-1 distribution plan covering their class of
shares.
SALES CHARGES AND DISTRIBUTION AND SERVICE FEES
Class A Shares. U.S. Government Trust and Intermediate Maturity Fund
impose an initial sales charge on Class A shares at rates ranging from 4.50% to
0.00% and 3.00% to 0.00%, respectively, of the amount invested depending on the
size of the purchase, the size of the purchaser's existing investment, if any,
at the time of the purchase, and the participation of the shareholder in special
purchase plans or arrangements to purchase additional shares. A contingent
deferred sales charge ("CDSC") of up to 1.00% is imposed on certain Class A
shares purchased without an initial sales charge and redeemed within one year of
purchase. An initial sales charge does not apply to Class A shares acquired
through the reinvestment of dividends from net investment income or capital gain
distributions.
Class A shares of U.S. Government Trust acquired by Intermediate
Maturity Fund's Class A shareholders pursuant to the Reorganization will not be
subject to any initial sales charge or CDSC. However, the CDSC imposed upon
certain redemptions within one year of purchase (referred to above) will
continue to apply to the Class A shares of Intermediate Maturity Fund issued in
the Reorganization. The holding period for determining the application of this
CDSC will be calculated from the date the U.S. Government Trust Class A shares
were originally issued.
Class B Shares. U.S. Government Trust and Intermediate Maturity Fund do
not impose an initial sales charge on Class B shares. However, Class B shares
redeemed within a specified number of years of purchase will be subject to a
CDSC at the rates set forth below. This CDSC will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost of
the Class B shares being redeemed. Accordingly, Class B shareholders will not
be assessed a CDSC on increases in account value above the initial purchase
price, including shares derived from reinvested dividends. The amount of the
CDSC, if any, will vary depending on the number of years from the time the
Class B shares were purchased until the time they are redeemed, as follows:
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<PAGE> 20
<TABLE>
<CAPTION>
U.S. Government Trust Intermediate Maturity Fund
THE CONTINGENT THE CONTINGENT
DEFERRED SALES DEFERRED SALES
YEAR IN CHARGE AS A YEAR IN CHARGE AS A
WHICH CLASS B PERCENTAGE OF WHICH CLASS B PERCENTAGE OF
SHARES REDEEMED DOLLAR AMOUNT SHARES REDEEMED DOLLAR AMOUNT
FOLLOWING PURCHASE SUBJECT TO CDSC FOLLOWING PURCHASE SUBJECT TO CDSC
<S> <C> <C> <C>
First 5.0% First 3.0%
Second 4.0% Second 2.0%
Third 3.0% Third 2.0%
Fourth 3.0% Fourth 1.0%
Fifth 2.0% Fifth and
Sixth 1.0% thereafter None
Seventh and
thereafter None
</TABLE>
Class B shares of Intermediate Maturity Fund acquired by U.S. Government
Trust's Class B shareholders pursuant to the Reorganization will not be subject
to any CDSC at the time of the Reorganization. However, these shares will
remain subject to the original CDSC applicable when you redeem those shares.
The CDSC schedule described above with respect to shares of Intermediate
Maturity Fund will not apply to the Class B shares of Intermediate Maturity Fund
that you acquire in the Reorganization. For purposes of computing the CDSC
payable upon redemption of Class B shares of Intermediate Maturity Fund acquired
by U.S. Government Trust's Class B shareholders pursuant to the Reorganization
and the automatic conversion of Class B shares into Class A shares, the holding
period of the U.S. Government Trust Class B shares will be added to that of the
Intermediate Maturity Fund Class B shares acquired in the Reorganization.
Distribution and Service Fees. Both Funds have adopted distribution
plans pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). Under these plans, each Fund may pay
fees to John Hancock Funds, Inc. ("John Hancock Funds"), the distributor of the
Funds' shares, to reimburse distribution and service expenses in connection with
Class A shares. These fees are payable at an annual rate of up to 0.25% of the
average daily net assets attributable to the Class A shares of U.S. Government
Trust and Intermediate Maturity Fund, respectively.
In addition, under the plans, each Fund may pay fees to John Hancock
Funds to reimburse it for distribution and service ex- penses in connection with
Class B shares. These fees are payable at an annual rate of up to 1.00% of each
Fund's average daily net assets attributable to its Class B shares. As of the
date of this Proxy Statement and Prospectus, John Hancock Funds has temporarily
-10-
<PAGE> 21
agreed to limit the fee paid by Class B shares of Intermediate Maturity Fund to
0.90% of such assets. Of these fees, up to 0.25% may be for service expenses
and the remainder will be for distribution services. With respect to Class B
shares only, if John Hancock Funds is not fully reimbursed for payments made or
expenses incurred in any fiscal year, it is entitled to carry forward these
expenses to subsequent fiscal years for submission to the applicable Fund for
payment, subject always to the maximum annual Class B distribution fee described
above.
The Board of Trustees of the Trust, on behalf of Intermediate Maturity
Fund, has determined that, if the Reorganization is consummated, unreimbursed
distribution and shareholder service expenses originally incurred in connection
with U.S. Government Trust's shares will be reimbursable under Intermediate
Maturity Fund's Rule 12b-1 plans. As of March 31, 1995, the unreimbursed
distribution and shareholder service expenses for Class A shares of Intermediate
Maturity Fund and U.S. Government Trust were $3,695 and $17,845, respectively.
The unreimbursed distribution and shareholder service expenses for Class B
shares of Intermediate Maturity Fund and U.S. Government Trust were $253,107 and
$6,629, respectively. See "Unreimbursed Distribution and Shareholder Expenses"
below.
PURCHASES AND EXCHANGES
Shares of Intermediate Maturity Fund may be purchased through certain
broker-dealers and through John Hancock Funds at the public offering price,
which is based on the next determined net asset value per share, plus any
applicable sales charge. The minimum initial investment in Intermediate
Maturity Fund is $1,000 ($250 for group investments and retirement plans). In
anticipation of the Reorganization, U.S. Government Trust has stopped offering
its shares to the public other than as part of a monthly automatic accumulation
program and shares purchased through the reinvestment of dividends and
distributions.
Shareholders of both Funds may exchange their shares at net asset value
for shares of the same class, if applicable, of certain other funds managed by
the Adviser. Shares of any fund acquired in this manner that are subject to a
CDSC will incur the CDSC, if still applicable, upon redemption. The exchange
privilege is available only in those states where exchanges can be made legally.
DISTRIBUTION PROCEDURES
It is the policy of both Funds to declare dividends daily and to pay
dividends monthly from net investment income. Each Fund also distributes
annually all of its other taxable income, including net short-term and long-term
capital gains it has
-11-
<PAGE> 22
realized. U.S. Government Trust will make, immediately prior to the
Closing Date (as defined below), a distribution of any net income and net
realized capital gains it has not yet distributed.
REINVESTMENT OPTIONS
Unless an election is made to receive cash, the shareholders of both
Funds automatically reinvest all of their respective dividends and capital gain
distributions in additional shares of the same class of the same Fund. These
reinvestments are made at the net asset value per share and are not subject to
any sales charge.
REDEMPTION PROCEDURES
Shares of both Funds may be redeemed on any day that the Fund is open
for business at a price equal to the net asset value of the shares next
determined after receipt of a redemption request in good order, less any
applicable CDSC. Alternatively, shareholders of both Funds may sell their
shares through securities dealers, who may charge a fee. Redemptions and
repurchases of Class B shares and certain Class A shares of U.S. Government
Trust and Intermediate Maturity Fund are subject to the applicable CDSC, if any.
Class A and Class B shares of U.S. Government Trust may be redeemed up to and
including the Closing Date (as defined below).
REORGANIZATION
Effect of the Reorganization. Pursuant to the terms of the Agreement,
the proposed Reorganization will consist of the acquisition by Intermediate
Maturity Fund of all the assets of U.S. Government Trust in exchange solely for
(i) the assumption by Intermediate Maturity Fund of all the liabilities of U.S.
Government Trust and (ii) the issuance of Intermediate Maturity Fund shares
equal to the value of these assets, less the amount of these liabilities (the
"Intermediate Maturity Fund Shares"), to U.S. Government Trust. As part of the
liquidation process, U.S. Government Trust will immediately distribute to its
shareholders these Intermediate Maturity Fund Shares in exchange for their
shares of U.S. Government Trust. Consequently, Class A shareholders of U.S.
Government Trust will become Class A shareholders of Intermediate Maturity Fund
and Class B shareholders of U.S. Government Trust will become Class B
shareholders of Intermediate Maturity Fund. After completion of the
Reorganization, the existence of U.S. Government Trust will be terminated.
The Reorganization will become effective as of 5:00 p.m. on the closing
date, scheduled for September 22, 1995, or another date on or before December
31, 1995 as authorized representatives
-12-
<PAGE> 23
of the Funds may agree (the "Closing Date"). The Intermediate Maturity Fund
Class A Shares issued to U.S. Government Trust for distribution to U.S.
Government Trust's Class A shareholders will have an aggregate net asset value
equal to that of U.S. Government Trust's Class A shares. The Intermediate
Maturity Fund Class B shares issued to U.S. Government Trust for distribution to
U.S. Government Trust's Class B shareholders will have an aggregate net asset
value equal to that of U.S. Government Trust's Class B shares. For purposes of
the Reorganization, the Funds' respective asset values will be determined as of
the close of business (4:00 p.m. Eastern Time) on the Closing Date.
The Board of Trustees, including the Trustees not affiliated with the
Adviser, unanimously approved the Reorganization, and determined that it was in
the best interests of both U.S. Government Trust and Intermediate Maturity Fund
and that the interests of U.S. Government Trust's and Intermediate Maturity
Fund's shareholders would not be diluted as a result of the Reorganization. For
a discussion of the factors considered by the Board of Trustees, see "Proposal
to Approve the Agreement and Plan of Reorganization--Reasons for the Proposed
Reorganization."
Tax Considerations. The consummation of the Reorganization is subject
to the receipt of an opinion of Hale and Dorr, counsel to the Funds,
satisfactory to the Trust, on behalf of each Fund, and substantially to the
effect that:
(a) The acquisition by Intermediate Maturity Fund of all of the assets
of U.S. Government Trust solely in exchange for the issuance of Intermediate
Maturity Fund Shares to U.S. Government Trust and the assumption of all of U.S.
Government Trust's liabilities by Intermediate Maturity Fund, followed by the
distribution by U.S. Government Trust, in liquidation of U.S. Government Trust,
of Intermediate Maturity Fund Shares to the shareholders of U.S. Government
Trust in exchange for their shares of beneficial interest of U.S. Government
Trust and the termination of U.S. Government Trust, will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code, and
U.S. Government Trust and Intermediate Maturity Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) no gain or loss will be recognized by U.S. Government Trust upon
(a) the transfer of all of its assets to Intermediate Maturity Fund solely in
exchange for the issuance of Intermediate Maturity Fund Shares to U.S.
Government Trust, and the assumption of all of U.S. Government Trust's
liabilities by Intermediate Maturity Fund; and (b) the distribution by U.S.
Government Trust of these Intermediate Maturity Fund Shares to the shareholders
of U.S. Government Trust;
-13-
<PAGE> 24
(c) no gain or loss will be recognized by Intermediate Maturity Fund
upon the receipt of U.S. Government Trust's assets solely in exchange for the
issuance of Intermediate Maturity Fund Shares to U.S. Government Trust and the
assumption of all of U.S. Government Trust's liabilities by Intermediate
Maturity Fund;
(d) the basis of the assets of U.S. Government Trust acquired by
Intermediate Maturity Fund will be, in each instance, the same as the basis of
those assets in the hands of U.S. Government Trust immediately prior to the
transfer;
(e) the tax holding period of the assets of U.S. Government Trust in
the hands of Intermediate Maturity Fund will, in each instance, include U.S.
Government Trust's tax holding period for those assets;
(f) the shareholders of U.S. Government Trust will not recognize gain
or loss upon the exchange of all of their U.S. Government Trust shares for
Intermediate Maturity Fund Shares as part of the Reorganization;
(g) the basis of the Intermediate Maturity Fund Shares received by U.S.
Government Trust shareholders in the Reorganization will be the same as the
basis of the U.S. Government Trust shares surrendered in exchange therefor; and
(h) the tax holding period of the Intermediate Maturity Fund Shares
received by U.S. Government Trust shareholders will include, for each
shareholder, the tax holding period for the U.S. Government Trust shares
surrendered in exchange therefor, provided the U.S. Government Trust shares were
held as capital assets on the date of the exchange.
THE MEETING
Time, Place and Date. The Meeting will be held on Friday, September 8,
1995, at 101 Huntington Avenue, Boston, Massachusetts 02199, at 9:00 a.m. Boston
time.
RECORD DATE
The Record Date for determining shareholders entitled to notice of and
to vote at the Meeting is July 14, 1995.
VOTE REQUIRED FOR APPROVAL
Approval of the Agreement by the shareholders of U.S. Government Trust
requires the affirmative vote of a majority of the shares of U.S. Government
Trust represented in person or by proxy and entitled to vote at a meeting of
shareholders at which a quorum is present. The Reorganization does not require
the
-14-
<PAGE> 25
approval of Intermediate Maturity Fund's shareholders. See "Proposal to Approve
the Agreement and Plan of Reorganization-- Voting Rights and Required
Vote."
RISK FACTORS AND SPECIAL CONSIDERATIONS
The investment objectives and policies of the Funds are substantially
similar. For this reason, the risks associated with an investment in the Funds
are substantially similar. These include the risk that the value of U.S.
Government securities will decline in response to increases in interest rate
levels. The Funds' investments in mortgage-backed securities are subject to the
reinvestment risk associated with early payments of principal and interest on
the underlying mortgages. In addition, mortgage foreclosures and prepayments of
principal may result in some loss to the Funds' principal investment in
mortgage-backed securities purchased as a premium. The Funds' investments in
options, futures and other derivative instruments may include the risk that the
applicable market will move against a Fund's derivative position and that a Fund
will incur a loss. Derivative instruments may increase or leverage the Funds'
exposure to a particular market risk, which may increase the volatility of a
Fund's net asset value. Intermediate Maturity Fund's success in using options
and futures to hedge portfolio assets depends on the degree of price correlation
between the instrument and the hedged asset. Some investments in which a Fund
may invest are not readily marketable or may become illiquid under adverse
market conditions. Intermediate Maturity Fund is permitted to invest up to 15%
of its assets in illiquid securities, while U.S. Government Trust may invest
only 10% of its assets in these securities. The use of mortgage dollar rolls and
reverse repurchase agreements involves leverage. Leverage allows any investment
gains made with the additional monies received to increase the net asset value
of the Funds' shares. However, if the additional monies received are invested
in ways that do not fully recover the costs to a Fund of these transactions, the
net asset value of that Fund may fall faster than otherwise would have been the
case.
INFORMATION CONCERNING THE MEETING
SOLICITATION, REVOCATION AND USE OF PROXIES
A majority of U.S. Government Trust's outstanding shares that are
represented and entitled to vote at the Meeting will be a quorum for the
transaction of business. A U.S. Government Trust shareholder executing and
returning a proxy has the power to revoke it at any time before it is exercised,
by filing a written notice of revocation with U.S. Government Trust's transfer
agent, Investor Services, P.O. Box 9116, Boston, Massachusetts 02205-9116, or
by returning a duly executed proxy with a later date
-15-
<PAGE> 26
before the time of the Meeting. Any shareholder who has executed a proxy but is
present at the Meeting and wishes to vote in person may revoke his or her proxy
by notifying the Secretary of U.S. Government Trust (without complying with any
formalities) at any time before it is voted. Presence at the Meeting alone will
not serve to revoke a previously executed and returned proxy.
If a quorum is not present in person or by proxy at the time any session
of the Meeting is called to order, the persons named as proxies may vote those
proxies that have been received to adjourn the Meeting to a later date. If a
quorum is present but there are not sufficient votes in favor of the Proposal,
the persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies with respect to the Proposal. Any
adjournment will require the affirmative vote of a majority of the shares of
U.S. Government Trust, represented in person or by proxy, at the session of the
Meeting to be adjourned. If an adjournment of the Meeting is proposed because
there are not sufficient votes in favor of the Reorganization, the persons named
as proxies will vote those proxies in favor of the Reorganization in favor of
adjournment, and will vote those proxies against the Reorganization against
adjournment.
OUTSTANDING SHARES AND RECORD DATE
At the close of business on June 30, 1995, shares of beneficial
interest of U.S. Government Trust were outstanding and entitled to vote. Only
U.S. Government Trust shareholders of record at the close of business on July
14, 1995 (the "Record Date") are entitled to notice of and to vote at the
Meeting and any adjournment of the Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF U.S. GOVERNMENT TRUST AND INTERMEDIATE MATURITY FUND
To the knowledge of the Trust, as of June 30, 1995, no person owned of
record or beneficially 5% or more of the outstanding Class A or Class B shares
of beneficial interest of U.S. Government Trust or Intermediate Maturity Fund.
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding Class A and Class B
shares of beneficial interest of U.S. Government Trust and Intermediate Maturity
Fund, respectively.
-16-
<PAGE> 27
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
GENERAL
The shareholders of U.S. Government Trust are being asked to approve the
Agreement, a copy which is attached as EXHIBIT A. The Reorganization will
consist of: (a) the transfer of all of U.S. Government Trust's assets to
Intermediate Maturity Fund, in exchange solely for the issuance of Intermediate
Maturity Fund Shares to U.S. Government Trust and the assumption of U.S.
Government Trust's liabilities by Intermediate Maturity Fund, (b) the subsequent
distribution by U.S. Government Trust, as part of its liquidation, of the
Intermediate Maturity Fund Shares to U.S. Government Trust's shareholders and
(c) the termination of U.S. Government Trust's existence. The Intermediate
Maturity Fund Class A Shares issued upon the consummation of the Reorganization
will have an aggregate net asset value equal to that of U.S. Government Trust's
Class A shares. The Intermediate Maturity Fund Class B Shares issued upon
consummation of the Reorganization will have an aggregate net asset value equal
to that of U.S. Government Trust's Class B shares. As noted above, the asset
values of U.S. Government Trust and Intermediate Maturity Fund will be
determined at the close of business (4:00 p.m. Eastern Time) on the Closing Date
for purposes of the Reorganization. See "Description of Agreement" below.
Pursuant to the Agreement, U.S. Government Trust will liquidate and
distribute the Intermediate Maturity Fund Shares received, as described above,
pro rata to the shareholders of record of each class determined as of the close
of regular trading on the New York Stock Exchange on the Closing Date. The
result of the transfer of assets will be that Intermediate Maturity Fund will
add to its portfolio the net assets of U.S. Government Trust. Class A
shareholders of U.S. Government Trust will become Class A shareholders of
Intermediate Maturity Fund, and Class B shareholders of U.S. Government Trust
will become Class B shareholders of Intermediate Maturity Fund.
The Agreement and the Reorganization were unanimously approved by the
Board of Trustees of the Trust on behalf of each of U.S. Government Trust and
Intermediate Maturity Fund at a meeting held on May 16, 1995.
The Trust's Board of Trustees has also approved the reorganization of
another series of the Trust, John Hancock Intermediate Government Trust, into
Intermediate Maturity Fund (the "Intermediate Government Reorganization"). On
March 31, 1995, Intermediate Government Trust had net assets of $8,305,602. The
Reorganization of U.S. Government Trust described in this Proxy Statement and
Prospectus is not contingent in any way upon
-17-
<PAGE> 28
the consummation of the Intermediate Government Reorganization. The Intermediate
Government Reorganization will not affect the net asset value of the
Intermediate Maturity Fund Shares or the number of such Shares to be received by
the shareholders of U.S. Government Trust.
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Trustees believes that the proposed Reorganization will be
advantageous to the shareholders of U.S. Government Trust in several respects.
The Board of Trustees considered the following matters, among others, in
approving the Proposal.
First, the Board of Trustees believes that it is not advantageous to
operate and market U.S. Government Trust separately from Intermediate Maturity
Fund, because the investment objectives and policies of the two Funds are
substantially similar.
Second, the Board of Trustees considered the fact that U.S. Government
Trust and Intermediate Maturity Fund are of comparable size. The Board of
Trustees determined that the existence of two comparable funds within the same
fund complex and with substantially similar investment characteristics is likely
to impede the marketing and asset growth of U.S. Government Trust.
Third, the Board of Trustees considered that shareholders of both Funds
may be better served by a fund offering greater diversification. To the extent
that the Funds' assets are combined into a single portfolio and a larger asset
base is created as a result of the Reorganization, greater diversification of
Intermediate Maturity Fund's investment portfolio can be achieved than is
currently possible in either Fund. Greater diversification is expected to be
beneficial to shareholders of both Funds, because it may reduce the negative
effect which the adverse performance of any one security may have on the
performance of the entire portfolio.
Fourth, the Board of Trustees believes that the Intermediate Maturity
Fund Shares received in the Reorganization will provide existing U.S. Government
Trust shareholders with substantially the same investment advantages that they
currently enjoy at a comparable level of risk. The Board of Trustees also
considered the performance history of each Fund.
Fifth, a combined fund offers economies of scale that should have a
positive effect on the expenses currently borne by the shareholders of U.S.
Government Trust and directly and indirectly by Intermediate Maturity Fund.
Both Funds incur substantial overhead costs for accounting, legal, transfer
agency services,
-18-
<PAGE> 29
insurance, and custodial and administrative services. The Board of Trustees
expects that the Reorganization will result in a decrease in the expenses
currently borne by U.S. Government Trust's shareholders. See "Summary--The
Funds' Expenses."
In determining that the Reorganization is in the best interests of U.S.
Government Trust and the interests of its shareholders, the Board of Trustees
considered the fact that the Adviser will receive certain benefits from the
Reorganization. The Reorganization will result in a consolidated portfolio
management effort, and may result in time savings to the Adviser by reducing the
number of reports and regulatory filings that its personnel need to prepare.
CAPITAL LOSS CARRYOVERS
As of March 31, 1995, U.S. Government Trust had capital loss carryovers,
as determined for federal income tax purposes, in the aggregate amount of
approximately $53,533,889, of which $39,799,667 expires on December 31, 1996,
$2,986,286 expires on December 31, 1997, $5,412,804 expires on December 31,
1998, $653,763 expires on December 31, 1999, $2,152,064 expires on December 31,
2000, and $2,529,305 expires on December 31, 2002. If the Reorganization does
not occur, U.S. Government Trust may use these capital loss carryovers to offset
its net capital gain, which would reduce the amount of net capital gain U.S.
Government Trust would be required to distribute to its shareholders in order to
avoid fund-level income and/or excise taxes on undistributed capital gain.
If the Reorganization is consummated, Intermediate Maturity Fund will
succeed to and take into account U.S. Government Trust's capital loss carryovers
and will be able to use such carryovers, along with any carryovers it may have,
to offset its net capital gain, subject to certain limitations under the Code
that may be applicable because of the Reorganization and certain other changes
in the past or future share ownership of Intermediate Maturity Fund, including
the issuance of shares of Intermediate Maturity Fund in other reorganization
transactions. These limitations could result in the expiration of all or
portions of such carryovers before they are fully used. However, U.S.
Government Trust did not, as of March 31, 1995, have net unrealized gains that,
when realized, its capital loss carryovers could be used to offset, and
accordingly all or substantial portions of U.S. Government Trust's capital loss
carryovers may also expire unused if the Reorganization is not consummated.
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<PAGE> 30
UNREIMBURSED DISTRIBUTION AND SHAREHOLDER SERVICE EXPENSES
The Board of Trustees has determined that, if the Reorganization is
consummated, distribution and shareholder service expenses incurred in
connection with shares of U.S. Government Trust, and not reimbursed under U.S.
Government Trust's Rule 12b-1 Plans or through CDSCs, will be reimbursable
expenses under Intermediate Maturity Fund's Rule 12b-1 Plans (the "assumption").
However, the maximum aggregate amounts payable during any fiscal year under
Intermediate Maturity Fund's Rule 12b-1 Plan (0.25% of average daily net assets
attributable to Class A shares and 1.00% of average daily net assets
attributable to Class B shares) will not be affected by the assumption.
With respect to both Class A and Class B shares of Intermediate Maturity
Fund, the percentage of net assets on a pro forma combined basis that the
unreimbursed expenses represent will increase slightly as a result of the
Reorganization and the assumption. As of March 31, 1995, the unreimbursed
distribution and shareholder service expenses of Intermediate Maturity Fund
attributable to Class A and Class B shares were $3,695 (0.029% of Intermediate
Maturity Fund's net assets attributable to Class A shares) and $253,107 (2.664%
of Intermediate Maturity Fund's net assets attributable to Class B shares),
respectively. As of the same date, the unreimbursed distribution and
shareholder service expenses of U.S. Government Trust attributable to Class A
and Class B shares were $17,845 (0.101% of U.S. Government Trust's net assets
attributable to Class A shares) and $6,629 (3.335% of U.S. Government Trust's
net assets attributable to Class B shares), respectively.
After the Reorganization, on a pro forma combined basis, the
unreimbursed distribution and shareholder service expenses of Intermediate
Maturity Fund attributable to Class A and Class B shares will be $21,540 (0.071%
of Intermediate Maturity Fund's pro forma net assets attributable to Class A
shares) and $259,736 (2.678% of Intermediate Maturity Fund's pro forma net
assets attributable to Class B shares), respectively.
The assumption will have no immediate effect upon the payments made
under Intermediate Maturity Fund's Rule 12b-1 Plans. While John Hancock Funds
hopes to recover unreimbursed distribution and shareholder service expenses over
an extended period of time, Intermediate Maturity Fund is not obligated to
assure that these amounts are recouped by John Hancock Funds. Unreimbursed
distribution and shareholder service expenses do not currently appear as an
expense or liability in the financial statements of either Fund, nor will they
appear in the financial statements of Intermediate Maturity Fund after the
Reorganization until paid or accrued. Unreimbursed expenses do not enter into
the calculation of the Fund's net asset value or the formula for
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<PAGE> 31
calculating Rule 12b-1 payments. Even in the event of termination or
noncontinuance of Intermediate Maturity Fund's 12b-1 Plans, Intermediate
Maturity Fund is not legally committed, and is not required to commit, to the
payment of any unreimbursed distribution and shareholder service expenses. The
staff of the Securities and Exchange Commission has not approved or disapproved
the treatment of the unreimbursed distribution and shareholder service expenses
described in this Proxy Statement.
BOARDS' EVALUATION AND RECOMMENDATION
On the basis of the factors described above and other factors, the Board
of Trustees, including a majority of the Trustees who are not "interested
persons" (as defined in the Investment Company Act) of the Funds, determined
that the Reorganization is in the best interests of U.S. Government Trust and
that the interests of U.S. Government Trust's shareholders will not be diluted
as a result of the Reorganization. On the same basis, the Board of Trustees of
the Trust, including a majority of the Trustees who are not "interested persons"
(as defined in the Investment Company Act) of the Funds, determined that the
Reorganization is in the best interests of Intermediate Maturity Fund and the
interests of Intermediate Maturity Fund's shareholders will not be diluted as a
result of the Reorganization.
THE TRUSTEES OF JOHN HANCOCK U.S. GOVERNMENT TRUST
RECOMMEND THAT THE SHAREHOLDERS OF JOHN HANCOCK
U.S. GOVERNMENT TRUST VOTE FOR THE PROPOSAL
TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
DESCRIPTION OF AGREEMENT
The following description of the Agreement is a summary, does not
purport to be complete, and is subject in all respects to the provisions of the
Agreement, and is qualified in its entirety by reference to the Agreement. A
copy of the Agreement is attached to this Proxy Statement and Prospectus as
EXHIBIT A and should be read in its entirety. Paragraph references are to
appropriate provisions of the Agreement.
Method of Carrying Out Reorganization. If U.S. Government Trust
shareholders approve the Agreement, the Reorganization will be consummated
promptly after the various conditions to the obligations of each of the parties
are satisfied (see Agreement, paragraphs 6 through 8). The Reorganization will
be completed on the Closing Date (as defined above).
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<PAGE> 32
On the Closing Date, U.S. Government Trust will transfer all of its
assets to Intermediate Maturity Fund in exchange for Intermediate Maturity Fund
Shares with an aggregate net asset value equal to the value of the assets
delivered, less the liabilities of U.S. Government Trust assumed, as of the
close of business on the Closing Date (see Agreement, paragraphs 1 and 2).
The value of U.S. Government Trust's assets and Intermediate Maturity
Fund's net asset values per Class A share and per Class B share will be
determined according to the valuation procedures set forth in the Trust's
Declaration of Trust and By-laws and the Intermediate Maturity Fund Prospectus,
respectively (see "Share Price" in the Intermediate Maturity Fund Prospectus).
No initial sales charge or CDSC will be imposed upon delivery of the
Intermediate Maturity Fund Shares in exchange for the assets of U.S. Government
Trust.
Surrender of Share Certificates. U.S. Government Trust shareholders
whose Class A or Class B shares are represented by one or more share
certificates should, prior to the Closing Date, either surrender their
certificates to U.S. Government Trust or deliver to U.S. Government Trust an
affidavit with respect to lost certificates, in the form and accompanied by the
surety bonds that U.S. Government Trust may require (collectively, an
"Affidavit"). On the Closing Date, all certificates which have not been
surrendered will be deemed to be cancelled, will no longer evidence ownership of
U.S. Government Trust's shares and will evidence ownership of Intermediate
Maturity Fund Shares. Shareholders may not redeem or transfer Intermediate
Maturity Fund Shares received in the Reorganization until they have surrendered
their U.S. Government Trust share certificates or delivered an Affidavit
relating to them. Intermediate Maturity Fund will not issue share certificates
in the Reorganization.
Conditions Precedent to Closing. The obligation of U.S. Government
Trust to consummate the Reorganization is subject to the satisfaction of certain
conditions precedent, including the Trust's performance of all acts and
undertakings required under the Agreement and the receipt of all consents,
orders and permits necessary to consummate the Reorganization (see Agreement,
paragraphs 6 through 8).
The obligation of Intermediate Maturity Fund to consummate the
Reorganization is subject to the satisfaction of certain conditions precedent,
including the Trust's performance of all acts and undertakings to be performed
under the Agreement, the receipt of certain documents and financial statements
from the Trust, on behalf of U.S. Government Trust and the receipt of all
consents, orders and permits necessary to consummate the Reorganization (see
Agreement, paragraphs 6 through 8).
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<PAGE> 33
The obligations of both parties are subject to the receipt of approval
and authorization of the Agreement by the vote of not less than a majority of
the outstanding shares of beneficial interest of U.S. Government Trust entitled
to vote (as described in the section captioned "Voting Rights and Required
Vote"), the receipt of a favorable opinion of Hale and Dorr as to the federal
income tax consequences of the Reorganization and the approval of shareholders
of Adjustable Government Trust of the proposals to change the structure of the
Fund, its investment objective and an investment restriction (see Agreement,
paragraph 8).
Termination of Agreement. The Agreement may be terminated, whether or
not approval of U.S. Government Trust's shareholders has been obtained, by
mutual agreement of the parties. In addition, either party may terminate its
obligations under the Agreement at or prior to the Closing Date, because of a
material breach by the other party of any representations, warranties or
agreements contained in the Agreement, or if a condition precedent in the
Agreement has not been met.
Expenses of the Reorganization. Intermediate Maturity Fund and U.S.
Government Trust will each be responsible for its own expenses incurred in
connection with entering into and carrying out the provisions of the Agreement,
whether or not the Reorganization is consummated.
Tax Considerations. The consummation of the Reorganization is subject
to the receipt of a favorable opinion of Hale and Dorr, counsel to the Funds,
satisfactory to the Trust on behalf of each of U.S. Government Trust and
Intermediate Maturity Fund and described above under the caption,
"Summary--Reorganization--Tax Considerations."
VOTING RIGHTS AND REQUIRED VOTE
Each U.S. Government Trust share is entitled to one vote. Class A and
Class B shareholders of U.S. Government Trust vote together with respect to the
Proposal. Approval of the Proposal requires the affirmative vote of a majority
of the shares of U.S. Government Trust represented in person or by proxy and
entitled to vote at a meeting of shareholders at which a quorum is present.
Shares of beneficial interest of U.S. Government Trust represented in
person or by proxy, including shares which abstain or do not vote with respect
to the Proposal, will be counted for purposes of determining whether a quorum is
present at the meeting. Accordingly, an abstention from voting has the same
effect as a vote against the Proposal. However, if a broker or nominee holding
shares in "street name" indicates on the proxy card that it does not have
discretionary authority to vote on the Proposal, those shares will not be
considered as present and
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<PAGE> 34
entitled to vote with respect to the Proposal. Accordingly, a "broker non-vote"
has no effect on the voting in determining whether the Proposal has been
adopted, provided that the holders of more than 50% of the outstanding
shares (excluding the "broker non-votes") are present or represented.
If the requisite approval of shareholders is not obtained, U.S.
Government Trust will continue to engage in business as a registered open-end,
management investment company and the Board of Trustees will consider what
further action may be appropriate.
<TABLE>
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of
March 31, 1995, and the pro forma combined capitalization of both Funds as if
the Reorganization had occurred on that date. The table reflects pro forma
exchange ratios of approximately 0.78479 Class A Intermediate Maturity Fund
Shares being issued for each Class A share of U.S. Government Trust, and
approximately 0.78522 Class B Intermediate Maturity Fund Shares being issued for
each Class B share of U.S. Government Trust. If the Reorganization is
consummated, the actual exchange ratios on the Closing Date may vary from those
indicated due to (i) changes in the market value of the portfolio securities of
both Intermediate Maturity Fund and U.S. Government Trust between March 31, 1995
and the Closing Date; (ii) changes in the amount of undistributed net investment
income and net realized capital gains of Intermediate Maturity Fund and U.S.
Government Trust during that period resulting from income and distributions; and
(iii) changes in the accrued liabilities of Intermediate Maturity Fund and U.S.
Government Trust during the same period.
<CAPTION>
MARCH 31, 1995
U.S. Intermediate Pro Forma
Government Trust Maturity Fund Combined
---------------- ------------- -----------
<S> <C> <C> <C>
Net Assets............ $17,780,907 $22,444,093 $40,225,000
Net Asset Value Per Share:
Class A............. $ 7.68 $ 9.78 $ 9.78
Class B............. $ 7.68 $ 9.78 $ 9.78
Shares Outstanding
Class A............. 2,290,672 1,323,395 3,121,102(1)
Class B............. 25,882 971,446 991,769(1)
___________________
</TABLE>
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<PAGE> 35
(1) If the Reorganization had taken place on March 31, 1995, U.S. Government
Trust would have received 1,797,707 Class A shares and 20,323
Class B shares of Intermediate Maturity Fund, which would have been
available for distribution to shareholders of the applicable class of
U.S. Government Trust. No assurance can be given as to the number of Class
A Shares or Class B shares of Intermediate Maturity Fund that will be
received by U.S. Government Trust on the Closing Date. The foregoing is
merely an example of what U.S. Government Trust would have received and
distributed had the Reorganization been consummated on March 31, 1995, and
should not be relied upon to reflect the amount that will actually be
received on the Closing Date.
(2) If both the Reorganization and the Intermediate Government Reorganization
had taken place on March 31, 1995, Intermediate Maturity Fund's pro forma
combined net assets would be $48,530,602 and the number of Class A and
Class B Intermediate Maturity Fund Shares outstanding would have been
3,940,150 and 1,021,937, respectively. The Intermediate Government
Reorganization will not affect the net asset value of the Class A or Class
B Intermediate Maturity Fund Shares to be issued in the Reorganization.
COMPARATIVE PERFORMANCE INFORMATION
TOTAL RETURN
The average annual total return at the public offering price on U.S.
Government Trust's Class A shares for the one-year and five-year periods ended
March 31, 1995 was (1.27)% and 6.63%, respectively. The average annual total
return at the public offering price on U.S. Government Trust's Class A shares
for the period from December 31, 1985 (commencement of operations) through March
31, 1995 was 6.38%. The average annual total return on U.S. Government Trust's
Class B shares for the period from September 30, 1994 (commencement of
operations) through March 31, 1995 was (0.72)%. Total return on Class B shares
reflects the applicable CDSC.
The average annual total return at the public offering price on
Intermediate Maturity Fund's Class A shares for the one-year period ended March
31, 1995 was 0.33%, giving effect to the expense limitations then in effect; and
(0.22)% without giving effect to such expense limitations. The average annual
total return at the public offering price on Intermediate Maturity Fund's Class
A shares for the period from December 31, 1991 (commencement of operations)
through March 31, 1995 was 3.35%, giving effect to the expense limitations then
in effect; and 2.85%
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<PAGE> 36
without giving effect to these expense limitations. The average annual total
return on Intermediate Maturity Fund's Class B shares for the one-year period
ended March 31, 1995 was 0.33%, giving effect to the expense limitations then in
effect; and (0.22)% without giving effect to such expense limitations. The
average annual total return on Intermediate Maturity Fund's Class B shares for
the period from December 31, 1991 (commencement of operations) through March 31,
1995 was 3.24%, giving effect to the expense limitations then in effect; and
2.74% without giving effect to these expense limitations. Total return on Class
B shares reflects the applicable CDSC.
The average annual total return of each class of the Funds is determined
by multiplying a hypothetical initial investment of $1,000 in a class by the
average annual compound rate of return (including capital
appreciation/depreciation, and dividends and distributions paid and reinvested)
attributable to that class for the stated period and annualizing the result.
The table below indicates the total return (capital changes plus
reinvestment of all dividends and distributions) on a hypothetical investment of
$1,000 in each class of each Fund covering the indicated periods ending March
31, 1995. The data below represent historical performance which should not be
considered indicative of future performance of either Fund. Each Fund's
performance and net asset value will fluctuate so that their shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK U.S. GOVERNMENT TRUST
(AS PROPOSED TO BE RENAMED, JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND)
(UNAUDITED)
<CAPTION>
Value of
Investment on
March 31, 1995 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
- ----------------- --------- ---------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
From inception
(December 31,1985)
to March 31, 1995 12/31/85 $1,000 $1,772 77.20 % 6.38 % 86.10 % 6.94 %
5 years ended
March 31, 1995 3/31/90 $1,000 $1,379 37.90 % 6.63% 38.40 % 7.68 %
1 year ended
March 31, 1995 3/31/94 $1,000 $ 987 (1.27)% (1.27)% 3.68 % 3.68 %
CLASS B SHARES:
From inception
(September 4, 1994)
to March 31, 1995 9/4/94 $1,000 $ 993 (0.72)% (0.72)% 4.28 % 4.28 %
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK ADJUSTABLE U.S. GOVERNMENT TRUST
(UNAUDITED)
<CAPTION>
Value of
Investment on
March 31, 1995 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
- ----------------- --------- ---------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
From inception
(December 31,1991)
to March 31, 1995 12/31/91 $1,000 $1,113 11.30 % 3.35 % 15.60 % 4.48 %
1 year ended
March 31, 1995 3/31/94 $1,000 $1,003 0.33 % 0.33 % 3.98 % 3.98 %
Class B Shares:
From inception
(December 31, 1991)
to March 31, 1995 12/31/91 $1,000 $1,109 10.90 % 3.24 % 12.90 % 3.81 %
1 year ended
March 31, 1995 3/31/94 $1,000 $1,003 0.33 % 0.33 % 3.30 % 3.33 %
</TABLE>
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<PAGE> 37
BUSINESS OF U.S. GOVERNMENT TRUST
GENERAL
For a discussion of the organization and operation of U.S. Government
Trust, see "Investment Objective and Policies" and "Organization and Management
of the Fund" in the U.S. Government Trust Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of U.S. Government Trust's investment objective and
policies, see "Investment Objective and Policies" in the U.S. Government Trust
Prospectus.
PORTFOLIO MANAGEMENT
All investment decisions for U.S. Government Trust are made by a
committee consisting of investment professionals employed by the Adviser, and no
single person is primarily responsible for making recommendations to the
committee.
TRUSTEES
For a discussion of the responsibilities of the Board of Trustees, see
"Organization and Management of the Fund" in the U.S. Government Trust
Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding U.S. Government Trust's investment adviser
and distributor, see "Organization and Management of the Fund," "How to Buy
Shares" and "Share Price" in the U.S. Government Trust Prospectus.
EXPENSES
For a discussion of U.S. Government Trust's expenses, see "Expense
Information" and "The Fund's Expenses" in the U.S. Government Trust Prospectus.
CUSTODIAN AND TRANSFER AGENT
U.S. Government Trust's custodian is Investors Bank & Trust Company.
U.S. Government Trust's transfer agent is John Hancock Investor Services
Corporation.
-28-
<PAGE> 38
U.S. GOVERNMENT TRUST SHARES
For a discussion of U.S. Government Trust's shares of beneficial
interest, see "Organization and Management of the Fund" in the U.S. Government
Trust Prospectus.
PURCHASE OF U.S. GOVERNMENT TRUST SHARES
For a discussion of how shares of U.S. Government Trust may be purchased
or exchanged, see "How to Buy Shares," "Alternative Purchase Arrangements" and
"Additional Services and Programs" in the U.S. Government Trust Prospectus. In
anticipation of the Reorganization, U.S. Government Trust has stopped offering
its shares to the public other than shares purchased through a monthly automatic
accumulation plan, the reinvestment of dividends and distributions.
REDEMPTION OF U.S. GOVERNMENT TRUST SHARES
For a discussion of how Class A and Class B shares of U.S. Government
Trust may be redeemed (other than in the Reorganization), see "How to Redeem
Shares" in the U.S. Government Trust Prospectus. U.S. Government Trust
shareholders whose shares are represented by share certificates will be required
to surrender their certificates for cancellation or deliver an affidavit of loss
accompanied by an adequate surety bond to Investor Services in order to redeem
Intermediate Maturity Fund Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of U.S. Government Trust's policy with respect to
dividends, distributions and taxes, see "Distributions and Taxes" in the U.S.
Government Trust Prospectus.
BUSINESS OF INTERMEDIATE MATURITY FUND
GENERAL
For a discussion of the organization and current operation of
Intermediate Maturity Fund, see "Investment Objective and Policies" and
"Organization and Management of the Fund" in the Intermediate Maturity Fund
Preliminary Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For discussion of Intermediate Maturity Fund's investment objective and
policies, see "Investment Objective and Policies" in the Intermediate Maturity
Fund Preliminary Prospectus.
-29-
<PAGE> 39
PORTFOLIO MANAGEMENT
All investment decisions for Intermediate Maturity Fund are made by a
committee consisting of investment professionals employed by the Adviser, and no
single person is primarily responsible for making recommendations to the
committee.
TRUSTEES
For a discussion of the responsibilities of Intermediate Maturity Fund's
Board of Trustees, see "Organization and Management of the Fund" in the
Intermediate Maturity Fund Preliminary Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding Intermediate Maturity Fund's investment
adviser and distributor, see "Organization and Management of the Fund," "How to
Buy Shares" and "Share Price" in the Intermediate Maturity Fund Preliminary
Prospectus.
EXPENSES
For a discussion of Intermediate Maturity Fund's expenses, see "Expense
Information" and "The Fund's Expenses" in the Intermediate Maturity Fund
Preliminary Prospectus.
CUSTODIAN AND TRANSFER AGENT
Intermediate Maturity Fund's custodian is Investors Bank & Trust
Company. Intermediate Maturity Fund's transfer agent is John Hancock Investor
Services Corporation.
INTERMEDIATE MATURITY FUND SHARES
For a discussion of the Intermediate Maturity Fund Shares, see
"Organization and Management of the Fund" in the Intermediate Maturity Fund
Preliminary Prospectus.
PURCHASE OF INTERMEDIATE MATURITY FUND SHARES
For a discussion of how Class A and Class B shares of Intermediate
Maturity Fund may be purchased or exchanged, see "How to Buy Shares,"
"Alternative Purchase Arrangements" and "Additional Services and Programs" in
the Intermediate Maturity Fund Preliminary Prospectus.
-30-
<PAGE> 40
REDEMPTION OF INTERMEDIATE MATURITY FUND SHARES
For a discussion of how Class A and Class B shares of Intermediate
Maturity Fund may be redeemed, see "How to Redeem Shares" in the Intermediate
Maturity Fund Preliminary Prospectus. Former shareholders of U.S. Government
Trust whose shares are represented by share certificates will be required to
surrender their certificates for cancellation or deliver an affidavit of loss
accompanied by an adequate surety bond to Investor Services in order to redeem
Intermediate Maturity Fund Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Intermediate Maturity Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Taxes" in the
Intermediate Maturity Fund Preliminary Prospectus.
EXPERTS
The respective financial statements and the financial highlights of
Intermediate Maturity Fund and U.S. Government Trust as of March 31, 1995 and
for the year then ended, incorporated by reference into this Proxy Statement and
Prospectus, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing in the Statement of Additional
Information, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act, and in accordance therewith
files reports, proxy statements and other information with the SEC. These
reports, proxy statements and other information filed by the Trust, on behalf of
each Fund, can be inspected and copied (at prescribed rates) at the public
reference facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C., and
at the following regional offices: Chicago (500 West Madison Street, Suite 1400,
Chicago, Illinois); and New York (7 World Trade Center, Suite 1300, New York,
New York). Copies of such material can also be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
-31-
<PAGE> 41
EXHIBIT A
Form of Agreement and Plan of Reorganization by and between John Hancock
Bond Fund, on behalf of John Hancock U.S. Government Trust, and John Hancock
Bond Fund, on behalf of John Hancock Adjustable U.S. Government Trust (as
proposed to be renamed, John Hancock Intermediate Maturity Government Fund)
(attached to this document).
A-1
<PAGE> 42
EXHIBIT A
---------
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made this _______ day of July, 1995, by and between John Hancock
Adjustable U.S. Government Trust (as proposed to be renamed, John
Hancock Intermediate Maturity Government Fund) (the "Acquiring Fund")
and John Hancock U.S. Government Trust (the "Acquired Fund"), each a
series of John Hancock Bond Fund (the "Trust"), a Massachusetts
business trust with its principal place of business at 101
Huntington Avenue, Boston, Massachusetts 02199. The Acquiring Fund
and the Acquired Fund are sometimes referred to collectively herein as
the "Funds" and individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of
"reorganization," as such term is used in Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization will consist of the transfer of all of the assets of
the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of Class A and Class B shares of beneficial interest of the
Acquiring Fund (the "Acquiring Fund Shares") to the Acquired Fund and
the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Fund, followed by the distribution by the Acquired Fund, on
or promptly after the Closing Date hereinafter referred to, of the
Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation and termination of the Acquired Fund as provided herein,
all upon the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and
agreements hereinafter set forth, the parties hereto covenant and
agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE
FOR ASSUMPTION OF LIABILITIES AND ISSUANCE OF
ACQUIRING FUND SHARES; LIQUIDATION OF THE ACQUIRED
FUND
1.1 The Acquired Fund will transfer all of its assets
(consisting, without limitation, of portfolio securities and
instruments, dividends and interest receivables, cash and other
assets), as set forth in the statement of assets and liabilities
referred to in Paragraph 7.2 hereof (the "Statement of Assets and
Liabilities"), to the Acquiring Fund free and clear of all liens and
encumbrances, except as otherwise provided herein, in exchange for (i)
the assumption by the Acquiring Fund of the known and unknown
liabilities of the Acquired Fund, including the liabilities set
forth in the Statement of Assets and Liabilities (the "Acquired Fund
Liabilities"), which shall be assigned and transferred to the
Acquiring Fund by the Acquired Fund and assumed by the Acquiring
Fund, and (ii) delivery by the Acquiring Fund to
<PAGE> 43
the Acquired Fund, for distribution pro rata by the Acquired Fund to
its Class A and Class B shareholders in proportion to their
respective ownership of Class A and/or Class B shares of beneficial
interest of the Acquired Fund, as of the close of business on
the closing date (the "Closing Date"), of a number of the Acquiring
Fund Shares having an aggregate net asset value, in the case of each
class of Acquiring Fund Shares, equal to the value of the assets,
less such liabilities (herein referred to as the "net value of the
assets"), attributable to the corresponding class of the Acquired
Fund so transferred, assumed, assigned and delivered, all determined
as provided in Paragraph 2.1 hereof and as of a date and time as
specified therein. Such transactions shall take place at the closing
provided for in Paragraph 3.1 hereof (the "Closing"). All
computations shall be provided by Investors Bank & Trust Company (the
"Custodian"), as custodian and pricing agent for the Acquiring Fund
and the Acquired Fund, and shall be recomputed by Ernst & Young LLP,
the independent accountants of the Acquiring Fund. The determination
of the Custodian, as recomputed by said accountants, shall, absent
manifest error, be conclusive and binding on all parties in interest.
1.2 The Acquired Fund has provided the Acquiring Fund with a
list of the current securities holdings of the Acquired Fund as of
the date of execution of this Agreement. The Acquired Fund reserves
the right to sell any of these securities (except to the extent sales
may be limited by representations made in connection with issuance of
the tax opinion provided for in paragraph 8.6 hereof) but will not,
without the prior approval of the Acquiring Fund, acquire any
additional securities other than securities of the type in which the
Acquiring Fund is permitted to invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear
its own expenses in connection with the transactions contemplated by
this Agreement.
1.4 On or as soon after the Closing Date as is conveniently
practicable (the "Liquidation Date"), the Acquired Fund will
liquidate and distribute pro rata to shareholders of record
of the applicable class (the "Acquired Fund shareholders"), determined
as of the close of regular trading on the New York Stock Exchange on
the Closing Date, the Acquiring Fund Shares received by the Acquired
Fund pursuant to Paragraph 1.1 hereof. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring
Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund, to open accounts on the share records of
the Acquiring Fund in the names of the Acquired Fund shareholders and
representing the respective pro rata number and class of Acquiring
Fund Shares due such shareholders. Acquired Fund shareholders who
own Class A shares of the Acquired
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<PAGE> 44
Fund will receive Class A Acquiring Fund Shares, and Acquired Fund
shareholders who own Class B shares of the Acquired Fund will receive
Class B Acquiring Fund Shares. The Acquiring Fund shall not issue
certificates representing Acquiring Fund Shares in connection with
such exchange.
1.5 The Acquired Fund shareholders holding certificates
representing their ownership of shares of beneficial interest of the
Acquired Fund shall surrender such certificates or deliver an
affidavit with respect to lost certificates in such form and
accompanied by such surety bonds as the Acquired Fund may require
(collectively, an "Affidavit"), to John Hancock Investor Services
Corporation prior to the Closing Date. Any Acquired Fund share
certificate which remains outstanding on the Closing Date shall be
deemed to be cancelled, shall no longer evidence ownership of shares
of beneficial interest of the Acquired Fund and shall evidence
ownership of Acquiring Fund Shares. Unless and until any such
certificate shall be so surrendered or an Affidavit relating thereto
shall be delivered, dividends and other distributions payable by the
Acquiring Fund subsequent to the Liquidation Date with respect to
Acquiring Fund Shares shall be paid to the holder of such
certificate(s), but such shareholders may not redeem or transfer
Acquiring Fund Shares received in the Reorganization. The Acquiring
Fund will not issue share certificates in the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund
Shares on the books of the Acquired Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as
promptly as practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust with respect to
the Acquired Fund, including, but not limited to, the responsibility
for filing of regulatory reports, tax returns, or other documents with
the Securities and Exchange Commission (the "Commission"), any state
securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and
shall remain the responsibility of the Trust.
2. VALUATION
2.1 The net asset values of the Class A and Class B Acquiring
Fund Shares and the net values of the assets and liabilities of the
Acquired Fund attributable to its Class A and Class B shares to be
transferred or assumed shall, in each case, be determined as of the
close of business (4:00 p.m. Boston time)
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<PAGE> 45
on the Closing Date. The net asset values of the Class A and Class B
Acquiring Fund Shares shall be computed by the Custodian in the
manner set forth in the Trust's Declaration of Trust, as amended, or
By-laws and the Acquiring Fund's then-current prospectus and
statement of additional information and shall be computed in each
case to not fewer than four decimal places. The net values of the
assets of the Acquired Fund attributable to its Class A and Class B
shares to be transferred shall be computed by the Custodian by
calculating the value of the assets of each class transferred by the
Acquired Fund and by subtracting therefrom the amount of the
liabilities of each respective class assigned and transferred to and
assumed by the Acquiring Fund on the Closing Date, said assets and
liabilities to be valued in the manner set forth in the Acquired
Fund's then-current prospectus and statement of additional
information and shall be computed in each case to not fewer than four
decimal places.
2.2 The number of shares of each class of Acquiring Fund
Shares to be issued (including fractional shares, if any) in exchange
for the Acquired Fund's assets shall be determined by dividing the
value of the Acquired Fund's assets attributable to a class, less the
liabilities attributable to that class assumed by the Acquiring Fund,
by the Acquiring Fund's net asset value per share of the same class,
all as determined in accordance with Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in
accordance with its regular practice as pricing agent for the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be September 22, 1995 or such other
date on or before December 31, 1995, as the parties may agree in
writing. The Closing shall be held as of 5:00 p.m. at the offices
of the Trust, 101 Huntington Avenue, Boston, Massachusetts 02199, or
at such other time and/or place as the parties may agree in writing.
3.2 Portfolio securities that are not held in book-entry form
in the name of the Custodian as record holder for the Acquired Fund
shall be presented by the Acquired Fund to the Custodian for
examination no later than five business days preceding the Closing
Date. Portfolio securities which are not held in book-entry form
shall be delivered by the Acquired Fund to the Custodian for the
account of the Acquiring Fund on the Closing Date, duly endorsed in
proper form for transfer, in such condition as to constitute good
delivery thereof in accordance with the custom of brokers, and shall
be accompanied by all necessary
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<PAGE> 46
federal and state stock transfer stamps or a check for the
appropriate purchase price thereof. Portfolio securities held of
record by the Custodian in book-entry form on behalf of the Acquired
Fund shall be delivered to the Acquiring Fund by the Custodian by
recording the transfer of beneficial ownership thereof on its
records. The cash delivered shall be in the form of currency or by
the Custodian crediting the Acquiring Fund's account maintained with
the Custodian with immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on said
Exchange or elsewhere shall be disrupted so that accurate appraisal
of the value of the net assets of the Acquiring Fund or the Acquired
Fund is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully
resumed and reporting shall have been restored; provided that if
trading shall not be fully resumed and reporting restored on or
before December 31, 1995, this Agreement may be terminated by the
Acquiring Fund or by the Acquired Fund upon the giving of written
notice to the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of
the names, addresses, federal taxpayer identification numbers and
backup withholding and nonresident alien withholding status of the
Acquired Fund shareholders and the number of outstanding shares of
each class of the Acquired Fund owned by each such shareholder, all
as of the close of business on the Closing Date, certified by its
Treasurer, Secretary or other authorized officer (the "Shareholder
List"). The Acquiring Fund shall issue and deliver to the Acquired
Fund a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date, or provide evidence satisfactory to
the Acquired Fund that such Acquiring Fund Shares have been credited
to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts or other documents
as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust on behalf of the Acquired Fund represents,
warrants and covenants to the Acquiring Fund as follows:
(a) The Trust is a voluntary association with transferable
shares of the type commonly referred to as a business trust,
duly organized and validly existing under the laws of The
Commonwealth of Massachusetts and has the power
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<PAGE> 47
to own all of its properties and assets and, subject to approval
by the shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Trust
nor the Acquired Fund is required to qualify to do business in
any jurisdiction in which it is not so qualified or where
failure to qualify would not subject it to any material
liability or disability. The Trust has all necessary federal,
state and local authorizations to own all of its properties and
assets and to carry on its business as now being conducted;
(b) The Trust is a registered investment company
classified as a management company and its registration with
the Commission as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), is in full
force and effect. The Acquired Fund is a diversified series of
the Trust;
(c) The Trust and the Acquired Fund are not, and the
execution, delivery and performance of their obligations under
this Agreement will not result, in violation of any provision of
the Trust's Declaration of Trust, as amended, or By-Laws or of
any agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust or the Acquired Fund is a party
or by which it is bound;
(d) Except as otherwise disclosed in writing and accepted
by the Acquiring Fund, no material litigation or administrative
proceeding or investigation of or before any court or
governmental body is currently pending or threatened against
the Trust or the Acquired Fund or any of the Acquired Fund's
properties or assets. The Trust knows of no facts which might
form the basis for the institution of such proceedings, and
neither the Trust nor the Acquired Fund is a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely
affects the Acquired Fund's business or its ability to
consummate the transactions herein contemplated;
(e) The Acquired Fund has no material contracts or other
commitments (other than this Agreement or agreements for the
purchase of securities entered into in the ordinary course of
business and consistent with its obligations under this
Agreement) which will not be terminated without liability to
the Acquired Fund at or prior to the Closing Date;
(f) The statement of assets and liabilities, including the
schedule of investments, of the Acquired Fund as of March 31,
1995 and the related statement of operations for the year then
ended, and the statement of changes in net
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<PAGE> 48
assets for the years ended March 31, 1995 and 1994 (audited by
Ernst & Young LLP) (copies of which have been furnished to the
Acquiring Fund) present fairly in all material respects the
financial condition of the Acquired Fund as of March 31, 1995
and the results of its operations and changes in net assets
for the respective stated periods in accordance with generally
accepted accounting principles consistently applied, and there
were no actual or contingent liabilities of the Acquired
Fund as of the respective dates thereof not disclosed therein;
(g) Since March 31, 1995, there has not been any material
adverse change in the Acquired Fund's financial condition,
assets, liabilities, or business other than changes occurring
in the ordinary course of business, or any incurrence by the
Acquired Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund;
(h) At the date hereof and by the Closing Date, all
federal, state and other tax returns and reports, including
information returns and payee statements, of the Acquired Fund
required by law to have been filed or furnished by such dates
shall have been filed or furnished, and all federal, state and
other taxes, interest and penalties shall have been paid so far
as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no
such return is currently under audit and no assessment has been
asserted with respect to such returns or reports;
(i) The Acquired Fund has elected to be treated as a
regulated investment company for federal income tax purposes,
has qualified as such for each taxable year of its operation and
will qualify as such as of the Closing Date with respect to its
final taxable year ending on the Closing Date;
(j) The authorized capital of the Trust consists of
unlimited number of shares of beneficial interest, par value
$.01 per share, divided into six series, including the Acquiring
Fund and the Acquired Fund. The shares of the Acquired Fund are
divided into two classes, Class A and Class B. All issued and
outstanding shares of beneficial interest of the Acquired Fund
are, and at the Closing Date will be, duly and validly issued
and outstanding, fully paid and nonassessable by the Trust. All
of the issued and outstanding shares of beneficial interest of
the Acquired Fund will, at the time of Closing, be held by the
persons and in the amounts and classes set forth in the
Shareholder List
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<PAGE> 49
submitted to the Acquiring Fund pursuant to Paragraph 3.4
hereof. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase
any of its shares of beneficial interest, nor is there
outstanding any security convertible into any of its shares of
beneficial interest;
(k) At the Closing Date, the Acquired Fund will have good
and marketable title to the assets to be transferred to the
Acquiring Fund pursuant to Paragraph 1.1 hereof, and full
right, power and authority to sell, assign, transfer and
deliver such assets hereunder, and upon delivery and payment
for such assets, the Trust on behalf of the Acquiring Fund will
acquire good and marketable title thereto subject to no
restrictions on the full transfer thereof, including such
restrictions as might arise under the Securities Act of 1933,
as amended (the "1933 Act");
(l) The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action on
the part of the Trust on behalf of the Acquired Fund, and this
Agreement constitutes a valid and binding obligation of the
Trust and the Acquired Fund enforceable in accordance with its
terms, subject to the approval of the Acquired Fund's
shareholders;
(m) The information to be furnished by the Acquired Fund
to the Acquiring Fund for use in applications for orders,
registration statements, proxy materials and other documents
which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall
comply in all material respects with federal securities and
other laws and regulations thereunder applicable thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy
Statement") to be included in the Registration Statement
referred to in Paragraph 5.7 hereof (other than written
information furnished by the Acquiring Fund for inclusion
therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the
Registration Statement, on the date of the meeting of the
Acquired Fund shareholders and on the Closing Date, shall not
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which such statements were made, not misleading;
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<PAGE> 50
(o) No consent, approval, authorization or order of any
court or governmental authority is required for the consummation
by the Acquired Fund of the transactions contemplated by this
Agreement;
(p) All of the issued and outstanding shares of beneficial
interest of the Acquired Fund have been offered for sale and
sold in conformity with all applicable federal and state
securities laws;
(q) The prospectus of the Acquired Fund, dated May 15, 1995
(the "Acquired Fund Prospectus"), previously furnished to the
Acquiring Fund, does not contain any untrue statements of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading.
4.2 The Trust on behalf of the Acquiring Fund represents,
warrants and covenants to the Acquired Fund as follows:
(a) The Trust is a voluntary association with transferable
shares of the type commonly referred to as a business trust duly
organized and validly existing under the laws of The
Commonwealth of Massachusetts and has the power to own all of
its properties and assets and to carry out the Agreement.
Neither the Trust nor the Acquiring Fund is required to qualify
to do business in any jurisdiction in which it is not so
qualified or where failure to qualify would not subject it to
any material liability or disability. The Trust has all
necessary federal, state and local authorizations to own all of
its properties and assets and to carry on its business as now
being conducted;
(b) The Trust is a registered investment company
classified as a management company and its registration with
the Commission as an investment company under the 1940 Act is in
full force and effect. The Acquiring Fund is a diversified
series of the Trust;
(c) The preliminary prospectus (the "Acquiring Fund
Prospectus") and preliminary statement of additional
information for Class A and Class B shares of the Acquiring
Fund, each dated July , 1995 and subject to completion, and
any amendments or supplements thereto on or prior to the Closing
Date, and the Registration Statement on Form N-14 to be filed in
connection with this Agreement (the "Registration Statement")
(other than written information furnished by the Acquired Fund
for inclusion therein, as covered by the Acquired Fund's
warranty in Paragraph 4.1(m) hereof) will
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<PAGE> 51
conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder, the Acquiring Fund Prospectus does
not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and the
Registration Statement will not include any untrue statement of
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading;
(d) At the Closing Date, the Trust on behalf of the
Acquiring Fund will have good and marketable title to the
assets of the Acquiring Fund;
(e) The Trust and the Acquiring Fund are not, and the
execution, delivery and performance of their obligations under
this Agreement will not result, in violation of any provisions
of the Trust's Declaration of Trust, as amended, or By-laws or of
any agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust or the Acquiring Fund is a party
or by which the Trust or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted
by the Acquired Fund, no material litigation or administrative
proceeding or investigation of or before any court or
governmental body is currently pending or threatened against
the Trust or the Acquiring Fund or any of the Acquiring Fund's
properties or assets. The Trust knows of no facts which might
form the basis for the institution of such proceedings, and
neither the Trust nor the Acquiring Fund is a party to or
subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely
affects the Acquiring Fund's business or its ability to
consummate the transactions herein contemplated;
(g) The statement of assets and liabilities of the
Acquiring Fund as of March 31, 1995 and the related statement of
operations and the schedule of investments (copies of which have
been furnished to the Acquired Fund), present fairly in all
material respects the financial position of the Acquiring Fund
as of March 31, 1995 and the results of its operations for the
period then ended in accordance with generally accepted
accounting principles consistently applied and there are no
known actual or contingent liabilities of the Acquiring Fund as
of the respective dates thereof not disclosed herein;
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<PAGE> 52
(h) Since March 31, 1995, there has not been any material
adverse change in the Acquiring Fund's financial condition,
assets, liabilities or business other than changes occurring in
the ordinary course of business, or any incurrence by the Trust
on behalf of the Acquiring Fund of indebtedness maturing more
than one year from the date such indebtedness was incurred;
(i) The Acquiring Fund has elected to be treated as a
regulated investment company for federal income tax purposes,
has qualified as such for each taxable year of its operation and
will qualify as such as of the Closing Date;
(j) The authorized capital of the Trust consists of an
unlimited number of shares of beneficial interest, par value
$.01 per share, divided into six series, including the Acquiring
Fund and the Acquired Fund. The shares of the Acquiring Fund are
divided into two classes, Class A and Class B. All issued and
outstanding shares of beneficial interest of the Acquiring Fund
are, and at the Closing Date will be, duly and validly issued
and outstanding, fully paid and nonassessable by the Trust. The
Acquiring Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of its shares
of beneficial interest, nor is there outstanding any security
convertible into any of its shares of beneficial interest;
(k) The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action on
the part of the Trust on behalf of the Acquiring Fund, and this
Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms;
(l) The Acquiring Fund Shares to be issued and delivered
to the Acquired Fund pursuant to the terms of this Agreement,
when so issued and delivered, will be duly and validly issued
shares of beneficial interest of the Acquiring Fund and will be
fully paid and nonassessable by the Trust;
(m) The information to be furnished by the Acquiring Fund
for use in applications for orders, registration statements,
proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be
accurate and complete and shall comply in all material respects
with federal securities and other laws and regulations
applicable thereto; and
(n) No consent, approval, authorization or order of any
court or governmental authority is required for the
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<PAGE> 53
consummation by the Acquiring Fund of the transactions
contemplated by the Agreement, except for the registration of
the Acquiring Fund Shares under the 1933 Act, the 1940 Act
and under state securities laws.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary,
the Trust, on behalf of both the Acquiring Fund and the Acquired
Fund, will operate its respective businesses in the ordinary course
between the date hereof and the Closing Date, it being understood that
such ordinary course of business will include customary dividends and
distributions and any other distributions necessary or desirable to
avoid federal income or excise taxes.
5.2 The Trust will call a meeting of the Acquired Fund
shareholders to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions
contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares
to be issued hereunder are not being acquired by the Acquired Fund for
the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
5.4 The Trust on behalf of the Acquired Fund will provide such
information within its possession or reasonably obtainable as the
Trust on behalf of the Acquiring Fund requests concerning the
beneficial ownership of the Acquired Fund's shares of beneficial
interest.
5.5 Subject to the provisions of this Agreement, the Acquiring
Fund and the Acquired Fund each shall take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate the transactions contemplated by
this Agreement.
5.6 The Trust on behalf of the Acquired Fund shall furnish to
the Trust on behalf of the Acquiring Fund on the Closing Date the
Statement of Assets and Liabilities of the Acquired Fund as of the
Closing Date, which statement shall be prepared in accordance with
generally accepted accounting principles consistently applied and
shall be certified by the Trust's Treasurer or Assistant Treasurer.
As promptly as practicable but in any case within 60 days after the
Closing Date, the Acquired Fund shall furnish to the Acquiring Fund,
in such form as is reasonably satisfactory to the Trust, a statement
of the earnings and profits of the Acquired Fund for federal income
tax purposes and of any capital loss carryovers and other items that
will be carried over to the Acquiring Fund as a result of Section 381
of the Code, and which statement will be certified by the President of
the Acquired Fund.
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<PAGE> 54
5.7 The Trust on behalf of the Acquiring Fund will prepare and
file with the Commission the Registration Statement in compliance with
the 1933 Act and the 1940 Act in connection with the issuance of the
Acquiring Fund Shares as contemplated herein.
5.8 The Trust on behalf of the Acquired Fund will prepare a
Proxy Statement, to be included in the Registration Statement in
compliance with the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act and the rules and
regulations thereunder (collectively, the "Acts") in connection
with the special meeting of shareholders of the Acquired Fund to
consider approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF
THE ACQUIRED FUND
The obligations of the Trust on behalf of the Acquired Fund to
complete the transactions provided for herein shall be, at its
election, subject to the performance by the Trust on behalf of the
Acquiring Fund of all the obligations to be performed by it hereunder
on or before the Closing Date, and, in addition thereto, the following
further conditions:
6.1 All representations and warranties of the Trust on
behalf of the Acquiring Fund contained in this Agreement shall
be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
and
6.2 The Trust on behalf of the Acquiring Fund shall have
delivered to the Acquired Fund a certificate executed in its
name by the Trust's President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquired Fund and dated as of the Closing
Date, to the effect that the representations and warranties of
the Trust on behalf of the Acquiring Fund made in this Agreement
are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Trust on behalf
of the Acquired Fund shall reasonably request.
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<PAGE> 55
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF
THE ACQUIRING FUND
The obligations of the Trust on behalf of the Acquiring Fund to
complete the transactions provided for herein shall be, at its
election, subject to the performance by the Trust on behalf of the
Acquired Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Trust on
behalf of the Acquired Fund contained in this Agreement shall be
true and correct in all material respects as of the date hereof
and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing
Date;
7.2 The Trust on behalf of the Acquired Fund shall have
delivered to the Trust on behalf of the Acquiring Fund the
Statement of Assets and Liabilities of the Acquired Fund,
together with a list of its portfolio securities showing the
federal income tax bases and holding periods of such securities,
as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of the Trust;
7.3 The Trust on behalf of the Acquired Fund shall have
delivered to the Trust on behalf of the Acquiring Fund on the
Closing Date a certificate executed in the name of the Acquired
Fund by a President or Vice President and a Treasurer or
Assistant Treasurer of the Trust, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing
Date, to the effect that the representations and warranties of
the Trust on behalf of the Acquired Fund in this Agreement are
true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Trust on behalf
of the Acquiring Fund shall reasonably request; and
7.4 At or prior to the Closing Date, the Acquired Fund's
investment adviser, or an affiliate thereof, shall have made all
payments, or applied all credits, to the Acquired Fund required
by any applicable contractual or state-imposed expense
limitation.
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<PAGE> 56
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST, THE
ACQUIRING FUND AND THE ACQUIRED FUND
The obligations of the Trust, the Acquiring Fund and the
Acquired Fund hereunder are each subject to the further conditions
that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein
shall have been approved by the requisite vote of the holders of the
outstanding shares of beneficial interest of the Acquired Fund in
accordance with the provisions of the Trust's Declaration of Trust,
as amended, and By-Laws, and certified copies of the resolutions
evidencing such approval by the Acquired Fund's shareholders shall
have been delivered by the Acquired Fund to the Trust on behalf of the
Acquiring Fund;
8.2 The proposals to (i) abolish the master/feeder structure of
the Acquiring Fund, (ii) approve an investment management contract
between the Trust, on behalf of the Acquiring Fund, and John Hancock
Advisers, Inc., (iii) approve an amendment to the Acquiring Fund's
fundamental investment objective, and (iv) approve an amendment to
the Acquiring Fund's fundamental investment restriction with respect
to certain investments shall have been approved by the requisite vote
of the holders of the outstanding shares of beneficial interest of the
Acquiring Fund in accordance with the provisions of the Trust's
Declaration of Trust, as amended, and By-Laws, and certified copies
of the resolutions evidencing such approval by the Acquiring Fund's
shareholders shall have been delivered by the Acquiring Fund to the
Trust on behalf of the Acquired Fund;
8.3 The abolition of the master/feeder structure of the
Acquiring Fund shall have been accomplished and the liquidation of
John Hancock Adjustable U.S. Government Fund (the master fund) shall
have been completed in accordance with the Agreement and Plan of
Liquidation and Termination between John Hancock Bond Fund, on
behalf of John Hancock Adjustable U.S. Government Fund (the master
fund), and John Hancock Bond Fund, on behalf of the Acquiring Fund
(the feeder fund).
8.4 On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it
is sought to restrain or prohibit, or obtain changes or other relief
in connection with, this Agreement or the transactions contemplated
herein;
8.5 All consents of other parties and all other consents,
orders and permits of federal, state and local regulatory
authorities (including those of the Commission and of state Blue
Sky and securities authorities, including "no-action" positions of
such federal or state authorities) deemed necessary by the Trust
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<PAGE> 57
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund, provided that either party hereto may waive
any such conditions for itself;
8.6 The Registration Statement shall have become effective
under the 1933 Act and the 1940 Act and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best
knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act or the 1940 Act;
8.7 The Acquired Fund shall have distributed to its
shareholders all of its investment company taxable income (as
defined in Section 852(b)(2) of the Code) for its taxable year
ending on the Closing Date and all of its net capital gain (as such
term is used in Section 852(b)(3)(C) of the Code), after reduction by
any available capital loss carryforward, for its taxable year ending
on the Closing Date; and
8.8 The parties shall have received an opinion of Messrs. Hale
and Dorr, satisfactory to the Trust on behalf of the Acquired Fund and
the Trust on behalf of the Acquiring Fund, substantially to the effect
that for federal income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the
assets of the Acquired Fund solely in exchange for the issuance
of Acquiring Fund Shares to the Acquired Fund and the assumption
of all of the Acquired Fund Liabilities by the Acquiring Fund,
followed by the distribution by the Acquired Fund, in
liquidation of the Acquired Fund, of Acquiring Fund Shares to
the shareholders of the Acquired Fund in exchange for their
shares of beneficial interest of the Acquired Fund and the
termination of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a) of the
Code, and the Acquired Fund and the Acquiring Fund will each be
"a party to a reorganization" within the meaning of Section
368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired
Fund upon (i) the transfer of all of its assets to the Acquiring
Fund solely in exchange for the issuance of Acquiring Fund
Shares to the Acquired Fund and the assumption of all of the
Acquired Fund Liabilities by the Acquiring Fund and (ii) the
distribution by the Acquired Fund of such Acquiring Fund Shares
to the shareholders of the Acquired Fund;
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<PAGE> 58
(c) No gain or loss will be recognized by the Acquiring
Fund upon the receipt of the assets of the Acquired Fund solely
in exchange for the issuance of the Acquiring Fund Shares to the
Acquired Fund and the assumption of all of the Acquired Fund
Liabilities by the Acquiring Fund;
(d) The basis of the assets of the Acquired Fund acquired
by the Acquiring Fund will be, in each instance, the same as the
basis of those assets in the hands of the Acquired Fund
immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired
Fund in the hands of the Acquiring Fund will, in each instance,
include the Acquired Fund's tax holding period for those assets;
(f) The shareholders of the Acquired Fund will not
recognize gain or loss upon the exchange of all of their shares
of beneficial interest of the Acquired Fund solely for Acquiring
Fund Shares as part of the transaction;
(g) The basis of the Acquiring Fund Shares received by the
Acquired Fund shareholders in the transaction will be the same
as the basis of the shares of beneficial interest of the
Acquired Fund surrendered in exchange therefor; and
(h) The tax holding period of the Acquiring Fund Shares
received by the Acquired Fund shareholders will include, for
each shareholder, the tax holding period for his shares of
beneficial interest of the Acquired Fund surrendered in
exchange therefor, provided that such Acquired Fund shares were
held as capital assets on the date of the exchange.
The Trust, on behalf of each of the Acquiring Fund the Acquired
Fund, agrees to make and provide representations with respect to the
Acquiring Fund and the Acquired Fund, respectively, which are
reasonably necessary to enable Hale and Dorr to deliver an opinion
substantially as set forth in this Paragraph 8.8. Notwithstanding
anything herein to the contrary, the Trust may not waive the
conditions set forth in this Paragraph 8.8.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust, on behalf of the Acquiring Fund and the Acquired
Fund, represents and warrants to the Acquired Fund and the Acquiring
Fund, respectively, that there are no brokers or finders entitled to
receive any payments in connection with the transactions provided for
herein.
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<PAGE> 59
9.2 The Acquiring Fund and the Acquired Fund shall each be
liable solely for its own expenses incurred in connection with
entering into and carrying out the provisions of this Agreement
whether or not the transactions contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust, on behalf of each of the Acquiring Fund and
the Acquired Fund, agrees that neither party has made any
representation, warranty or covenant not set forth herein or referred
to in Paragraph 4 hereof and that this Agreement constitutes the
entire agreement between the parties.
10.2 The representations, warranties and covenants contained in
this Agreement or in any document delivered pursuant hereto or in
connection herewith shall survive the consummation of the
transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement
of the Trust, on behalf of the Acquiring Fund, and the Trust, on
behalf of the Acquired Fund. In addition, either party may at its
option terminate this Agreement at or prior to the Closing Date:
(a) because of a material breach by the other of any
representation, warranty, covenant or agreement contained
herein to be performed at or prior to the Closing Date;
(b) because of a condition herein expressed to be
precedent to the obligations of the terminating party which
has not been met and which reasonably appears will not or cannot
be met; or
(c) by resolution of the Trust's Board of Trustees if
circumstances should develop that, in the good faith opinion of
such Board, make proceeding with the Agreement not in the best
interest of either party's shareholders.
11.2 In the event of any such termination, there shall be no
liability for damages on the part of the Trust, the Acquiring Fund or
the Acquired Fund, or the Directors or officers of the Trust, but each
party shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement.
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<PAGE> 60
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the authorized
officers of the Trust. However, following the meeting of
shareholders of the Acquired Fund held pursuant to Paragraph 5.2 of
this Agreement, no such amendment may have the effect of changing the
provisions regarding the method for determining the number of
Acquiring Fund Shares to be received by the Acquired Fund
shareholders under this Agreement to the detriment of such
shareholders without their further approval; provided that nothing
contained in this Article 12 shall be construed to prohibit the
parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by
any provisions of this Agreement shall be in writing and shall be
given by prepaid telegraph, telecopy or certified mail addressed to
the Acquiring Fund or to the Acquired Fund, each at 101 Huntington
Avenue, Boston, Massachusetts 02199, Attention: President, and, in
either case, with copies to Hale and Dorr, 60 State Street, Boston,
Massachusetts 02109, Attention: Pamela J. Wilson, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
14.2 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the prior written
consent of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm
or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of
this Agreement.
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<PAGE> 61
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first set forth above by its
President or Vice President and attested by its Secretary or Assistant
Secretary and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK BOND FUND on behalf of
JOHN HANCOCK ADJUSTABLE GOVERNMENT TRUST
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
JOHN HANCOCK BOND FUND on behalf of
JOHN HANCOCK U.S. GOVERNMENT TRUST
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
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<PAGE> 62
EXHIBIT B
Preliminary Prospectus of John Hancock Intermediate Maturity Government
Fund (formerly, Adjustable Government Trust) for Class A and Class B shares,
dated September 15, 1995 and subject to completion.
B-1
<PAGE> 63
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THE REGISTRATION STATEMENT BECOMES EFFECTIVE. NEITHER THIS PROSPECTUS NOR
THE STATEMENT OF ADDITIONAL INFORMATION SHALL CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE OR JURISDICTION.
<PAGE> 64
SUBJECT TO COMPLETION
DATED JULY ___, 1995
JOHN HANCOCK INTERMEDIATE MATURITY
GOVERNMENT FUND
Class A and Class B Shares
Prospectus
September __, 1995
TABLE OF CONTENTS
Page
----
Expense Information.....................................
The Fund's Financial Highlights.........................
Investment Objective and Policies.......................
Organization and Management of the Fund.................
Alternative Purchase Arrangements.......................
The Fund's Expenses.....................................
Dividends and Taxes.....................................
Performance.............................................
How to Buy Shares.......................................
Share Price.............................................
How to Redeem Shares....................................
Additional Services and Programs........................
Investments, Techniques and Risk Factors................
This Prospectus sets forth the information about John Hancock
Intermediate Maturity Government Fund (the "Fund"), a diversified
series of John Hancock Bond Fund (the "Trust"), that you should
know before investing. Please read and retain it for future
reference.
Additional information about the Fund and the Trust has been
filed with the Securities and Exchange Commission (the "SEC").
You can obtain a copy of the Fund's Statement of Additional
Information, dated September __, 1995, and incorporated by
reference into this Prospectus, free of charge by writing or
telephoning: John Hancock Investor Services Corporation, P.O. Box
9116, Boston, Massachusetts 02205-9116, 1-800-225-5291
(1-800-554-6713 TDD).
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank, and the shares are not
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 65
EXPENSE INFORMATION
The purpose of the following information is to help you to
understand the various fees and expenses you will bear, directly
or indirectly, when you purchase Fund shares. The operating
expenses included in the table and hypothetical example below are
based on fees and expenses for the Fund's fiscal year ended
March 31, 1995 adjusted to reflect current sales charges. Actual
fees and expenses in the future of Class A and Class B shares may
be greater or less than those indicated.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price)...... 3.00% None
Maximum sales charge imposed on
reinvested dividends..................... None None
Maximum deferred sales charge.............. None* 3.00%
Redemption fee+ ........................... None None
Exchange fee............................... None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management fee............................. 0.40% 0.40%
12b-1 fee (net of limitation for Class B)** 0.25% 0.90%
Other expenses***.......................... ____% ____%
Expenses reimbursed by Adviser............. ____% ____%
Total Fund operating expenses
(net of limitation)****.................. 0.75% 1.40%
</TABLE>
* No sales charge is payable at the time of purchase on
investments of $1 million or more, but for these investments
a contingent deferred sales charge may be imposed, as
described below under the caption "Share Price," in the
event of certain redemption transactions within one year of
purchase.
** The amount of the 12b-1 fee used to cover service expenses
will be up to 0.25% of the Fund's average net assets, and
the remaining portion will be used to cover distribution
expenses.
*** Other Expenses include transfer agent, legal, audit, custody
and other expenses.
**** Total Fund Operating Expenses in the table reflect voluntary
and temporary limitations by the Fund's investment adviser
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<PAGE> 66
and, in the case of Class B shares, distributor until
December 31, 1996. Without such limitations the Total Fund
Operating Expenses of Class A shares would have been
estimated as ___% and the Rule 12b-1 Fee and Total Fund
Operating Expenses of Class B shares would have been
estimated as 1.00% and ___%, respectively.
+ Redemption by wire fee (currently $4.00) not included.
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<PAGE> 67
<TABLE>
<CAPTION>
EXAMPLE: 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses for the indicated
period of years on a hypothetical
$1,000 investment, assuming
5% annual return:
Class A Shares.................... $ $ $ $
Class B Shares
-- Assuming complete redemption
at end of period............. $ $ $ $
-- Assuming no redemption....... $ $ $ $
</TABLE>
(This example should not be considered a representation of past or
future expenses. Actual expenses may be greater or lesser than
those shown.)
The Fund's payment of a distribution fee may result in a
long-term shareholder indirectly paying more than the economic
equivalent of the maximum front-end sales charge permitted under
the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
The management and 12b-1 fees referred to above are more
fully explained in this Prospectus under the caption "The Fund's
Expenses" and in the Statement of Additional Information under the
captions "Investment Advisory and Other Services" and
"Distribution Contract."
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<PAGE> 68
THE FUND'S FINANCIAL HIGHLIGHTS
The information in the following table of financial
highlights has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose unqualified report is included in the
Fund's 1995 Annual Report and is included in the Statement of
Additional Information. Further information about the performance
of the Fund is contained in the Fund's Annual Report to
shareholders which may be obtained free of charge by writing or
telephoning John Hancock Investor Services Corporation ("Investor
Services"), at the address or telephone number listed on the front
page of this Prospectus.
Selected data for each class of shares outstanding throughout
each period is as follows:
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<PAGE> 69
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------------------------- -----------------------------------
Period Period
Year Ended March 31, Ending Year Ended March 31, Ending
-------------------------- March 31, ------------------------ March 31,
1995(1) 1994 1993 1992(2) 1995(1) 1994 1993 1992(2)
------- ---- ---- --------- ------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................................... $9.89 $10.05 $10.03 $10.00 $9.89 $10.05 $10.03 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment income........................ 0.49 0.41 0.58 0.17 0.43 0.34 0.51 0.15
Net realized and unrealized gain
(loss) on investments...................... (0.11) (0.16) 0.02 0.03 (0.11) (0.16) 0.02 0.03
----- ----- ------ ------ ----- ----- ------ -----
Total from Investment
Operations.................................. 0.38 0.25 0.60 0.20 0.32 0.18 0.53 0.18
LESS DISTRIBUTIONS:
Dividends from net investment
income..................................... (0.48) (0.41) (0.58) (0.17) (0.42) (0.34) (0.51) (0.15)
----- ----- ------ ------ ----- ----- ------ -----
Net asset value, end of period................. $9.79 $9.89 $10.05 $10.03 $9.79 $9.89 $10.05 $10.03
===== ===== ====== ====== ===== ===== ====== =====
TOTAL RETURN*.................................. 3.98% 2.51% 6.08% 1.96% 3.33% 1.85% 5.40% 1.80%
===== ===== ====== ====== ===== ===== ====== =====
Ratios and Supplemental Data:
Ratio of expenses to average net
assets(3).................................... 1.35% 0.99% 1.05% 1.62% 2.00% 1.64% 1.70% 2.27%
Ratio of expense reduction to
average net assets(3)........................ (0.55)% (0.24)% (0.55)% (1.12)% (0.55)% (0.24)% (0.55)% (1.12)%
----- ----- ------ ------ ----- ----- ------ -----
Ratio of net expenses to average
net assets(3)................................ 0.80% 0.75% 0.50% 0.50% 1.45% 1.40% 1.15% 1.15%
===== ===== ====== ====== ===== ===== ====== =====
Ratio of net investment income to
average net assets(4)........................ 4.91% 4.09% 5.47% 6.47%(5) 4.26% 3.44% 4.82% 5.85%(5)
Portfolio turnover............................. 341.00% 244.00% 186.00% 1.00% 341.00% 244.00% 186.00% 1.00%
Net Assets, end of period
(in thousands)............................... $12,950 $24,310 $33,273 $13,775 $9,506 $11,626 $13,753 $1,630
</TABLE>
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<PAGE> 70
____________
(1) On December 22, 1994, John Hancock Advisers, Inc. became the
investment adviser to the Fund.
(2) Financial highlights are for the period from December 31,
1991 (date of the Fund's initial offering of shares to the
public) to March 31, 1992, and all ratios have been
annualized (with the exception of total return).
(3) For the fiscal year ended March 31, 1995, the expenses and
expense reduction to average net assets for the Fund alone
were ___% and ____%, respectively, for Class A shares and
____% and ____% respectively, for Class B shares. For the
fiscal year ended March 31, 1994, the expenses and expense
reduction to average net assets for the Fund alone were .40%
and (.15)%, respectively for Class A Shares and 1.05% and
(.15)%, respectively for Class B Shares. For the fiscal year
ended March 31, 1993, the expenses and expense reduction to
average net assets were .43% and (.43)%, respectively for
Class A Shares and 1.08% and (.43)%, respectively, for
Class B Shares. For the period ended March 31, 1992, the
annualized ratios of expenses and expense reduction to
average net assets were 0.77% and (0.77)%, respectively for
Class A Shares and 1.42% and (0.77)%, respectively for
Class B Shares.
(4) The ratio for the Fund was ___% for the fiscal year ended
March 31, 1995, 4.29% for fiscal year ended March 31, 1994,
5.53% for the fiscal year ended March 31, 1993 and 6.85%,
annualized, for the period ended March 31, 1992.
(5) The ratio of net investment income to average net assets is
computed based on paid shares since only paid shares are
entitled to receive dividends from net investment income.
* Total return does not include the effect of the initial sales
charge for Class A shares nor the contingent deferred sales
charge for Class B shares.
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<PAGE> 71
INVESTMENT OBJECTIVE AND POLICIES
THE FUND SEEKS TO ACHIEVE A HIGH LEVEL OF CURRENT INCOME,
CONSISTENT WITH PRESERVATION OF CAPITAL AND MAINTENANCE OF
LIQUIDITY.
The Fund's investment objective is to achieve a high level of
current income, consistent with preservation of capital and
maintenance of liquidity. The Fund seeks to achieve its
investment objective by investing primarily in U.S. Government
securities, including mortgage-backed securities issued or
guaranteed by U.S. Government agencies. The Fund may also invest
in obligations of the Tennessee Valley Authority, the World Bank,
asset-backed securities collateralized by U.S. Government
securities and medium-term debt obligations of governmental and
corporate issuers. Under normal market conditions, the Fund
intends to maintain a weighted average remaining maturity or
remaining average life of three and ten years. There is no
assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund intends to invest
primarily (at least 65% of its total assets) in U.S. Government
securities. U.S. Government securities consist of the following:
1. U.S. Treasury obligations, which differ only in their
interest rates, maturities and time of issuance,
including U.S. Treasury bills (maturity of one year or
less), U.S. Treasury notes (maturity of one to ten
years), and U.S. Treasury bonds (generally maturities
greater than ten years); and
2. Obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities which are supported
by: (i) the full faith and credit of the U.S. Government
(e.g., securities issued by the Government National
Mortgage Association ("Ginnie Maes")); (ii) the right
of the issuer to borrow an amount limited to a specific
line of credit from the U.S. Government (e.g.,
securities of the Federal Home Loan Bank Board); or
(iii) the credit of the instrumentality (e.g., bonds
issued by the Federal National Mortgage Association
("Freddie Macs") or the Federal National Mortgage
Association ("Fannie Maes")).
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed
securities which provide monthly payments that are, in effect, a
"pass-through" of the monthly interest and principal payments
(including prepayments) made by the individual borrowers on the
pooled mortgage loans. The Fund's investments in mortgage-backed
securities may also include certain classes of multiple class
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<PAGE> 72
collateralized mortgage obligations and "stripped" mortgage-backed
securities ("SMBS"). During periods of declining interest rates,
principal and interest on mortgage-backed securities may be
prepaid at faster-than-expected rates. The proceeds of these
prepayments typically can only be invested in lower-yielding
securities. Therefore, mortgage-backed securities may be less
effective at maintaining yields during periods of declining
interest rates than traditional debt obligations of similar
maturity. Different types of mortgage-backed securities are
subject to different combinations of prepayment, extension,
interest rate and/or other market risks. See "Investments,
Techniques and Risk Factors" for a further discussion of U.S.
Government securities and these risks.
The Fund may write (sell) covered call and put options on
securities in which it may invest and on indices composed of
securities in which it may invest. The Fund may purchase call and
put options on these securities and indices.
Options, futures contracts and mortgage-backed securities are
generally considered to be "derivative" instruments because they
derive their value from the performance of an underlying asset,
index or other economic benchmark. See "Investments, Techniques
and Risk Factors" for additional discussion of derivative
instruments.
The Fund may also lend its portfolio securities, enter into
repurchase agreements, mortgage dollar rolls and reverse
repurchase agreements, purchase securities on a forward commitment
or when-issued basis and purchase restricted and illiquid
securities.
See "Investments, Techniques and Risk Factors" for more
information about the Fund's investments.
THE FUND FOLLOWS CERTAIN POLICIES WHICH MAY HELP TO REDUCE
INVESTMENT RISK.
The Fund has adopted certain investment restrictions which
are enumerated in detail in the Statement of Additional
Information where they are classified as fundamental or
nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. The Fund's
investment objective and its policies, including its policy of
investing at least 65% of its assets in U.S. Government
securities, are nonfundamental and may be changed by a vote of the
Trustees without shareholder approval.
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<PAGE> 73
BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION.
The primary consideration in choosing brokerage firms to
carry out the Fund's transactions is execution at the most
favorable prices, taking into account the broker's professional
ability and quality of service. Consideration may also be given
to the broker's sales of Fund shares. Pursuant to procedures
determined by the Trustees, the Fund's investment adviser, John
Hancock Advisers, Inc. (the "Adviser"), may place securities
transactions with brokers affiliated with the Adviser. Affiliated
brokers include Tucker Anthony Incorporated, Sutro and Company,
Inc. and John Hancock Distributors, Inc., which are indirectly
owned by the John Hancock Mutual Life Insurance Company (the "Life
Company"), which in turn indirectly owns the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
THE TRUSTEES ELECT OFFICERS AND RETAIN THE INVESTMENT ADVISER
WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND,
SUBJECT TO THE TRUSTEES' POLICIES AND SUPERVISION.
The Fund is a diversified series of the Trust, an open-end
management investment company organized as a Massachusetts
business trust in 1984. The Trust reserves the right to create
and issue a number of series of shares, or funds or classes
thereof, which are separately managed and have different
investment objectives. The Trustees have authorized the issuance
of two classes of the Fund, designated Class A and Class B. The
shares of each class represent an interest in the same portfolio
of investments of the Fund. Each class has equal rights as to
voting, redemption, dividends and liquidation. However, each
class bears different distribution and transfer agent fees and
other expenses. Also, Class A and Class B shareholders have
exclusive voting rights with respect to their distribution plans.
The Trust is not required to and does not intend to hold annual
meetings of shareholders, although special meetings may be held
for such purposes as electing or removing Trustees, changing
fundamental policies or approving a management contract. The
Fund, under certain circumstances, will assist in shareholder
communications with other shareholders.
JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES
HAVING AN AGGREGATE NET ASSET VALUE OF MORE THAN $13 BILLION.
The Adviser was organized in 1968 and is a wholly-owned
indirect subsidiary of the Life Company, a financial services
company. The Adviser provides the Fund, and other investment
companies in the John Hancock group of funds, with investment
research and portfolio management services. John Hancock Funds,
-10-
<PAGE> 74
Inc. ("John Hancock Funds") distributes shares for all of the John
Hancock mutual funds through brokers which have agreements with
John Hancock Funds ("Selling Brokers"). Certain Fund officers are
also officers of the Adviser and John Hancock Funds.
All investment decisions are made by a committee and no
single person is primarily responsible for making recommendations
to the committee.
In order to avoid any conflict with portfolio trades for the
Fund, the Adviser and the Fund have adopted extensive restrictions
on personal securities trading by personnel of the Adviser and its
affiliates. Some of these restrictions are: preclearance for all
personal trades and a ban on the purchase of initial public
offerings, as well as contributions to specified charities of
profits on securities held for less than 91 days. These
restrictions are a continuation of the basic principle that the
interests of the Fund and its shareholders come first.
ALTERNATIVE PURCHASE ARRANGEMENTS
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO CHOOSE THE METHOD
OF PAYMENT THAT IS BEST FOR YOU.
You can purchase shares of the Fund at a price equal to their
net asset value per share plus a sales charge. At your election,
this charge may be imposed either at the time of the purchase (see
"Initial Sales Charge Alternative," Class A shares) or on a
contingent deferred basis (the "Contingent Deferred Sales Charge
Alternative," Class B shares). If you do not specify on your
account application the class of shares you are purchasing, it
will be assumed that you are investing in Class A shares.
INVESTMENTS IN CLASS A SHARES ARE SUBJECT TO AN INITIAL SALES
CHARGE.
CLASS A SHARES. If you elect to purchase Class A shares, you
will incur an initial sales charge unless the amount of your
purchase is $1 million or more. If you purchase $1 million or
more of Class A shares, you will not be subject to an initial
sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to
ongoing distribution and service fees at a combined annual rate of
up to 0.25% of the Fund's average daily net assets attributable to
the Class A shares. Certain purchases of Class A shares qualify
for reduced initial sales charges. See "Share Price -- Qualifying
for a Reduced Sales Charge."
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<PAGE> 75
INVESTMENTS IN CLASS B SHARES ARE SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE.
CLASS B SHARES. You will not incur a sales charge when you
purchase Class B shares, but the shares are subject to a sales
charge if you redeem them within six years of purchase (the
"contingent deferred sales charge" or the "CDSC"). Class B shares
are subject to ongoing distribution and service fees at a combined
annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. The amount of the Fund's 12b-
1 fee for Class B shares is currently limited to 0.90% of the
Fund's average daily net assets attributable to the Class B
shares. Investing in Class B shares permits all of your dollars
to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher
expenses than those of Class A shares. To the extent that any
dividends are paid by the Fund, these higher expenses will also
result in lower dividends than those paid on Class A shares.
Class B shares are not available for full-service defined
contribution plans administered by Investor Services or the Life
Company that had more than 100 eligible employees at the inception
of the Fund account.
YOU SHOULD CONSIDER WHICH CLASS OF SHARES WOULD BE MORE
BENEFICIAL TO YOU.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE. The
alternative purchase arrangement allows you to choose the most
beneficial way to buy shares, given the amount of your purchase,
the length of time you expect to hold your shares and other
circumstances. You should consider whether, during the
anticipated life of your Fund investment, the CDSC and accumulated
fees on Class B shares would be less than the initial sales charge
and accumulated fees on Class A shares purchased at the same time,
and to what extent this differential would be offset by the
Class A shares' lower expenses. To help you make this
determination, the table under the caption "Expense Information"
on the inside cover page of this Prospectus shows examples of the
charges applicable to each class of shares. Class A shares will
normally be more beneficial if you qualify for reduced sales
charges. See "Share Price -- Qualifying for a Reduced Sales
Charge."
Class A shares are subject to lower distribution fees and,
accordingly, pay correspondingly higher dividends per share, to
the extent any dividends are paid. However, because initial sales
charges are deducted at the time of purchase, you would not have
all of your funds invested initially and, therefore, would
initially own fewer shares. If you do not qualify for reduced
-12-
<PAGE> 76
initial sales charges and expect to maintain your investment for
an extended period of time, you might consider purchasing Class A
shares. This is because the accumulated distribution and service
charges on Class B shares may exceed the initial sales charge and
accumulated distribution and service charges on Class A shares
during the life of your investment.
Alternatively, you might determine that it is more
advantageous to purchase Class B shares to have all of your funds
invested initially. However, you will be subject to higher
distribution and service fees and, for a six-year period, a CDSC.
In the case of Class A shares, the distribution expenses that
John Hancock Funds incurs in connection with the sale of the
shares will be paid from the proceeds of the initial sales charge
and ongoing distribution and service fees. In the case of Class B
shares, the expenses will be paid from the proceeds of the ongoing
distribution and service fees, as well as from the CDSC incurred
upon redemption within six years of purchase. The purpose and
function of the Class B shares' CDSC and ongoing distribution and
service fees are the same as those of the Class A shares' initial
sales charge and ongoing distribution and service fees. Sales
personnel distributing the Fund's shares may receive different
compensation for selling each class of shares.
Dividends, if any, on Class A and Class B shares will be
calculated in the same manner, at the same time and on the same
day. They also will be in the same amount, except for differences
resulting from each class bearing only its own distribution and
service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund
pays a monthly fee to the Adviser equal to 0.40%.
During the Fund's fiscal year ended March 31, 1995, the
advisory fee paid by the Fund was equal to [____%] of the Fund's
average daily net assets, reflecting the agreement by the Adviser
to reduce operating expenses and not to impose a portion of its
management fee during that year. The Adviser has voluntarily and
temporarily agreed to continue to limit the Fund's aggregate
operating expenses until December 31, 1996 and not to impose its
management fee to the extent necessary to limit the total of the
management fees and the aggregate operating expenses of the Fund
(including transfer agent fees and fees payable by the Fund under
a Rule 12b-1 plan) to 0.75% and 1.40% of the average net assets
attributable to the Class A and Class B shares, respectively.
-13-
<PAGE> 77
THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND
SALES-RELATED SHAREHOLDER SERVICING.
The Class A and Class B shareholders have adopted
distribution plans (each a "Plan") pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "1940 Act"). Under these
Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.25% of the Class A shares'
average daily net assets and an aggregate annual rate of 1.00% of
the Class B shares' average daily net assets. John Hancock Funds
has temporarily agreed to limit the distribution and services fees
pursuant to the Class B Plan to 0.90% of average daily net assets.
In each case, up to 0.25% is for service expenses and the
remaining amount is for distribution expenses. The distribution
fees will be used to reimburse John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial
and ongoing sales compensation to Selling Brokers and others
(including affiliates of John Hancock Funds) engaged in the sale
of Fund shares; (ii) marketing, promotional and overhead expenses
incurred in connection with the distribution of Fund shares;
(iii) unreimbursed distribution expenses under the Fund's prior
distribution plans; (iv) distribution expenses incurred by other
investment companies which sell all or substantially all of their
assets to, merge with or otherwise engage in a reorganization
transaction with the Fund; and (v) with respect to Class B shares
only, interest expenses on unreimbursed distribution expenses.
The service fees will be used to compensate Selling Brokers for
providing personal and account maintenance services to
shareholders.
In the event John Hancock Funds is not fully reimbursed for
payments it makes or expenses it incurs under the Class A Plan,
these expenses will not be carried beyond one year from the date
they were incurred. Unreimbursed expenses under the Class B Plan
will be carried forward together with interest on the balance of
these unreimbursed expenses.
For the fiscal year ended March 31, 1995, an aggregate of
$_______ of distribution expenses or % of the average net
assets of the Fund's Class B shares was not reimbursed or
recovered by John Hancock Funds through the receipt of deferred
sales charges or Rule 12b-1 fees in prior periods.
Information on the Fund's total expenses is in the Financial
Highlights section of this Prospectus.
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<PAGE> 78
DIVIDENDS AND TAXES
THE FUND GENERALLY DECLARES DIVIDENDS DAILY AND DISTRIBUTES
THEM MONTHLY.
DIVIDENDS. The Fund generally declares daily and distributes
monthly dividends representing all or substantially all of its net
investment income. The Fund will distribute net realized
long-term and short-term capital gains, if any, at least annually.
Dividends are reinvested in additional shares of your class
unless you elect the option to receive them in cash. If you elect
the cash option and the U.S. Postal Service cannot deliver your
checks, your election will be converted to the reinvestment
option. Because of the higher expenses associated with Class B
shares, any dividend on these shares will be lower than those on
the Class A shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income
and net short-term capital gains are taxable to you as ordinary
income and dividends from the Fund's net long-term capital gains
are taxable as long-term capital gain. These dividends are
taxable whether you take them in cash or reinvest in additional
shares. Certain dividends may be paid in January of a given year
but may be taxable as if you received them the previous December.
The Fund has qualified and intends to continue to qualify as
a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company, the Fund will not be subject to Federal income
tax on any net investment income or net realized capital gains
that are distributed to its shareholders within the time period
prescribed by the Code. When you redeem (sell) or exchange
shares, you may realize a taxable gain or loss.
On the account application you must certify that your social
security or other taxpayer identification number you provide is
correct and that you are not subject to backup withholding of
Federal income tax. If you do not provide this information or are
otherwise subject to this withholding, the Fund may be required to
withhold 31% of your dividends and the proceeds of redemptions and
exchanges.
In addition to Federal taxes, you may be subject to state,
local or foreign taxes with respect to your investment in and
distributions from the Fund. Non-U.S. shareholders and tax-exempt
shareholders are subject to different tax treatment not described
above. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the
extent the Fund's distributions are derived from interest on (or,
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<PAGE> 79
in the case of intangibles taxes, the value of its assets is
attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. You
should consult your tax adviser for specific advice.
PERFORMANCE
THE FUND MAY ADVERTISE ITS YIELD AND TOTAL RETURN.
Yield reflects the Fund's rate of income on portfolio
investments as a percentage of its share price. Yield is computed
by annualizing the result of dividing the net investment income
per share over a 30 day period by the maximum offering price per
share on the last day of that period. Yield is also calculated
according to accounting methods that are standardized for all
stock and bond funds. Because yield accounting methods differ
from the methods used for other accounting purposes, the Fund's
yield may not equal the income paid on shares or the income
reported in the Fund's financial statements.
The Fund's total return shows the overall dollar or
percentage change in value of a hypothetical investment in the
Fund, assuming the reinvestment of all dividends. Cumulative
total return shows the Fund's performance over a period of time.
Average annual total return shows the cumulative return divided
over the number of years included in the period. Because average
annual total return tends to smooth out variations in the Fund's
performance, you should recognize that it is not the same as
actual year-to-year results.
Both total return and yield calculations for Class A shares
generally include the effect of paying the maximum sales charge
(except as shown in "The Fund's Financial Highlights").
Investments at lower sales charges would result in higher
performance figures. Total return and yield for Class B shares
reflect the deduction of the applicable CDSC imposed on a
redemption of shares held for the applicable period. All
calculations assume that all dividends are reinvested at net asset
value on the reinvestment dates during the periods. Total return
and yield of Class A and Class B shares will be calculated
separately and, because each class is subject to different
expenses, the total return may differ with respect to that class
for the same period. The relative performance of the Class A and
Class B shares will be affected by a variety of factors, including
the higher operating expenses attributable to the Class B shares,
whether the Fund's investment performance is better in the earlier
or later portions of the period measured and the level of net
assets of the classes during the period. The Fund will include
-16-
<PAGE> 80
the total return of Class A and Class B shares in any
advertisement or promotional materials including Fund performance
data. The value of Fund shares, when redeemed, may be more or
less than their original cost. Both yield and total return are
historical calculations, and are not an indication of future
performance. See "Alternative Purchase Arrangements -- Factors to
Consider in Choosing an Alternative."
HOW TO BUY SHARES
- ----------------------------------------------------------------------------
OPENING AN ACCOUNT
The minimum initial investment in Class A and Class B shares is $1,000
($250 for group investments and retirement plans). Complete the Account
Application attached to this Prospectus. Indicate whether you are
purchasing Class A or Class B shares. If you do not specify which class of
shares you are purchasing, Investor Services will assume that you are
investing in Class A shares.
- ----------------------------------------------------------------------------
BY CHECK
1. Make your check payable to John Hancock Investor Services
Corporation ("Investor Services"), P.O. Box 9115,
Boston, MA, 02205-9115.
2. Deliver the completed application and check to your registered
representative or Selling Broker or mail it directly to Investor
Services.
- ----------------------------------------------------------------------------
BY WIRE
1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Intermediate Maturity
Government Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- ----------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B SHARES
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. Complete the "Automatic Investing" and "Bank Information"
sections on the Account Privileges Application designating a bank
account from which funds may be drawn.
- ----------------------------------------------------------------------------
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<PAGE> 81
- --------------------------------------------------------------------------------
2. The amount you elect to invest will be automaticallywithdrawn from
your bank or credit union account.
- --------------------------------------------------------------------------------
BY TELEPHONE
1. Complete the "Invest-By-Phone" and "Bank Information" sections on
the Account Privileges Application designating a bank account from
which your funds may be drawn. Note that in order to invest by
phone, your account must be in a bank or credit union that is a
member of the Automated Clearing House system (ACH).
2. After your authorization form has been processed, you may purchase
additional Class A or Class B shares by calling Investor Services
toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which your
account is registered, the Fund name, the class of shares you own,
your account number, and the amount you wish to invest.
4. Your investment normally will be credited to your account the
business day following your phone request.
- --------------------------------------------------------------------------------
BY CHECK
1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, the class of shares you own, your account number
and the name(s) in which the account is registered.
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling Broker.
- --------------------------------------------------------------------------------
BY WIRE
Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Intermediate Maturity Government
Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered.
- --------------------------------------------------------------------------------
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<PAGE> 82
- --------------------------------------------------------------------------------
Other Requirements: All purchases must be made in U.S. dollars. Checks
written on foreign banks will delay purchases until U.S. funds are received,
and a collection charge may be imposed. Shares of the Fund are priced at the
offering price based on the net asset value
- --------------------------------------------------------------------------------
computed after Investor Services receives notification of the dollar
equivalent from the Fund's custodian bank. Wire purchases normally take two
or more hours to complete and, to be accepted the same day, must be received
by 4:00 P.M., New York time. Your bank may charge a fee to wire funds.
Telephone transactions are recorded to verify information. Certificates are
not issued unless a request is made in writing to Investor Services.
- --------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT YOU SHOULD KEEP TO
HELP WITH YOUR PERSONAL RECORDKEEPING.
You will receive a statement of your account after any
transaction that affects your share balance or registration
(statements related to reinvestment of dividends and automatic
investment/withdrawal plans will be sent to you quarterly). A tax
information statement will be mailed to you by January 31 of each
year.
SHARE PRICE
THE OFFERING PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE
PLUS A SALES CHARGE, IF APPLICABLE, WHICH WILL VARY WITH THE
PURCHASE ALTERNATIVE YOU CHOOSE.
The net asset value per share ("NAV") is the value of one
share. The NAV is calculated by dividing the net assets of each
class by the number of outstanding shares of that class. The NAV
of each class can differ. Securities in the Fund's portfolio are
valued on the basis of market quotations, valuations provided by
independent pricing services or at fair value as determined in
good faith according to procedures approved by the Trustees.
Short-term debt investments maturing within 60 days are valued at
amortized cost, which the Trustees have determined approximates
market value. The NAV is calculated once daily as of the close of
regular trading on the New York Stock Exchange (the "Exchange")
(generally at 4:00 P.M., New York time) on each day that the
Exchange is open.
Shares of the Fund are sold at the offering price based on
the NAV computed after your investment request is received in good
order by John Hancock Funds. If you buy shares of the Fund
through a Selling Broker, the Selling Broker must receive your
investment before the close of regular trading on the Exchange and
transmit it to John Hancock Funds before its close of business to
receive that day's offering price.
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<PAGE> 83
<TABLE>
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering
price you pay for Class A shares of the Fund equals the NAV plus a
sales charge as follows:
<CAPTION>
Combined
Reallow-
ance and Reallowance
Sales Sales Service to Selling
Charge as Charge as a Fee as a Brokers as a
Amount Invested a Percentage Percentage of Percentage Percentage of
(Including Sales of Offering the Amount of Offering the Offering
Charge) Price Invested Price(+) Price(*)
---------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Less than $100,000 3.00% 3.09% 2.50% 2.26%
$100,000 to $499,999 2.50% 2.56% 2.25% 2.01%
$500,000 to $999,999 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over 0.00%(**) 0.00(**) (***) 0.00(***)
-----------------------------
<FN>
(*) Upon notice to Selling Brokers with whom it has sales
agreements, John Hancock Funds may reallow an amount up to
the full applicable sales charge. In addition to the
reallowance allowed to all Selling Brokers, John Hancock
Funds will pay the following: round trip airfare to a
resort to each registered representative of a Selling
Broker (if the Selling Broker has agreed to participate)
who sells certain amounts of shares of John Hancock Funds.
John Hancock Funds will make these incentive payments out
of its own resources. A Selling Broker to whom
substantially the entire sales charge is reallowed or who
receives these incentives may be deemed to be an
underwriter under the Securities Act of 1933. Other than
distribution and service fees, the Fund does not bear
distribution expenses.
(**) No sales charge is payable at the time of purchase of
Class A shares of $1 million or more, but a CDSC may be
imposed in the event of certain redemption transactions
within one year of purchase.
(***) John Hancock Funds may pay a commission and the first
year's service fee (as described in ( ) below) to Selling
Brokers who initiate and are responsible for purchases of
$1 million or more in aggregate as follows: 1% on sales to
$4,999,999, 0.50% on the next $5 million and 0.25% on
amounts of $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling
Brokers the first year's service fee in advance in an
</TABLE>
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<PAGE> 84
amount equal to 0.25% of the net assets invested in the
Fund, and thereafter, it pays the service fee periodically
in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as
compensation for providing personal and account maintenance
services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are
reinvested in additional Class A shares of the Fund.
In addition, John Hancock Funds will pay certain affiliated
Selling Brokers at an annual rate of up to 0.05% of the daily net
assets of accounts attributable to these brokers.
Under certain circumstances described below, investors in
Class A shares may be entitled to pay reduced sales charges. See
"Qualifying for a Reduced Sales Charge."
<TABLE>
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR
MORE IN CLASS A SHARES. Purchases of $1 million or more of
Class A shares will be made at net asset value with no initial
sales charge, but if the shares are redeemed within 12 months
after the end of the calendar month in which the purchase was made
(the CDSC period), a CDSC will be imposed. The rate of the CDSC
will depend on the amount invested as follows:
<CAPTION>
AMOUNT INVESTED CDSC RATE
--------------- ---------
<S> <C>
$1 million to $4,999,999............................ 1.00%
Next $5 million to $9,999,999....................... 0.50%
Amounts of $10 million and over..................... 0.25%
</TABLE>
Existing full service clients of the Life Company who were
group annuity contract holders as of September 1, 1994 and
participant directed defined contribution plans with at least 100
eligible employees at the inception of the Fund account may
purchase Class A shares with no initial sales charge. However, if
the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be
imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of
the current market value or the original purchase cost of the
redeemed Class A shares. Accordingly, no CDSC will be imposed on
increases in account value above the initial purchase price,
including any distributions which have been reinvested in
additional Class A shares.
In determining whether a CDSC applies to a redemption, the
calculation will be determined in a manner that results in the
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<PAGE> 85
lowest possible rate being charged. Therefore, it will be assumed
that the redemption is first made from any shares in your account
that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent
Deferred Sales Charges" below.
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE ON YOUR INVESTMENT
IN CLASS A SHARES.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than
$100,000 in Class A shares of the Fund or a combination of funds
within the John Hancock family of funds (except money market
funds), you may qualify for a reduced sales charge on your
investments in Class A shares through a LETTER OF INTENTION. You
may also be able to use the ACCUMULATION PRIVILEGE and the
COMBINATION PRIVILEGE to take advantage of the value of your
previous investments in Class A shares of the John Hancock funds
in meeting the breakpoints for a reduced sales charge. For the
ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable
sales charge will be based on the total of:
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the
previous day) of (a) all Class A shares of the Fund you
hold, and (b) all Class A shares of any other John
Hancock funds you hold; and
3. The net asset value of all shares held by another
shareholder eligible to combine his or her holdings with
you into a single "purchase."
EXAMPLE:
If you hold Class A shares of a John Hancock fund with a net
asset value of $20,000 and, subsequently, invest $80,000 in
Class A shares of the Fund, the sales charge on this subsequent
investment would be 2.50% and not 3.00%. (The rate that would
otherwise be applicable to investments of less than $100,000. See
"Initial Sales Charge Alternative -- Class A Shares.")
CLASS A SHARES MAYBE AVAILABLE WITHOUT A SALES CHARGE TO
CERTAIN INDIVIDUALS AND ORGANIZATIONS.
If you are in one of the following categories, you may
purchase Class A shares of the Fund without paying a sales charge:
o
A Trustee or officer of the Fund; a Director or officer
of the Adviser and its affiliates or Selling Brokers;
employees or sales representatives of any of the
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<PAGE> 86
foregoing; retired officers, employees or Directors of
any of the foregoing; a member of the immediate family
of any of the foregoing; or any fund, pension, profit
sharing or other benefit plan for the individuals
described above.
Any state, county, city or any instrumentality,
department, authority, or agency of these entities that
is prohibited by applicable investment laws from paying
a sales charge or commission when it purchases shares of
any registered investment management company.*
A bank, trust company, credit union, savings institution
or other type of depository institution, its trust
departments or common trust funds if it is purchasing $1
million or more for non-discretionary customers or
accounts.*
A broker, dealer or registered investment adviser that
has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in
fee-based investment products made available to their
clients.
A former participant in an employee benefit plan with
John Hancock Funds, when he/she withdraws from his/her
plan and transfers any or all of his/her plan
distributions directly to the Fund.
-------------------------
* For investments made under these provisions, John Hancock Funds may
make a payment out of its own resources to the Selling Broker in an
amount not to exceed 0.25% of the amount invested.
Class A shares of the Fund may be purchased without an
initial sales charge in connection with certain liquidation,
merger or acquisition transactions involving other investment
companies or personal holding companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES.
Class B shares are offered at net asset value per share without a
sales charge so that your entire initial investment will go to
work at the time of purchase. However, Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
rates set forth below. This charge will be assessed on an amount
equal to the lesser of the current market value or the original
purchase cost of the shares being redeemed. Accordingly, you will
not be assessed a CDSC on increases in account value above the
initial purchase price, including shares derived from dividend
reinvestment.
-23-
<PAGE> 87
In determining whether a CDSC applies to a redemption, the
calculation will be determined in a manner that results in the
lowest possible rate being charged. It will be assumed that your
redemption comes first from shares you have held beyond the
four-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held
the longest during the four-year period. The CDSC is waived on
redemptions in certain circumstances. See the discussion "Waiver
of Contingent Deferred Sales Charges" below.
<TABLE>
EXAMPLE:
You have purchased 100 shares at $10 per share. The second
year after your purchase, your investment's net asset value per
share has increased by $2 to $12, and you have gained 10
additional shares through dividend reinvestment. If you redeem 50
shares at this time, your CDSC will be calculated as follows:
<S> <C> <C>
o Proceeds of 50 shares redeemed
at $12 per share $600
o Minus proceeds of 10 shares not subject
to CDSC because they were acquired through
dividend reinvestment (10 x $12) -120
o Minus appreciation on remaining shares,
also not subject to CDSC (40 x $2) -80
----
o Amount subject to CDSC $400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John
Hancock Funds uses part of them to defray its expenses related to
providing the Fund with distribution services connected to the
sale of Class B shares, such as compensating Selling Brokers for
selling these shares. The combination of the CDSC and the
distribution and service fees makes it possible for the Fund to
sell Class B shares without deducting a sales charge at the time
of the purchase.
The amount of the CDSC, if any, will vary depending on the
number of years from the time you purchase your Class B shares
until the time you redeem them. Solely for the purposes of
determining this holding period, any payments you make during the
month will be aggregated and deemed to have been made on the last
day of the month.
-24-
<PAGE> 88
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
YEAR IN WHICH CLASS B SHARES CHARGE AS A PERCENTAGE OF
REDEEMED FOLLOWING PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC
---------------------------- -----------------------------
<S> <C>
First 3.0%
Second 2.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
</TABLE>
A commission equal to 2.75% of the amount invested and a
first year's service fee equal to 0.25% of the amount invested are
paid to Selling Brokers. The initial service fee is paid in
advance at the time of sale for the provision of personal and
account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid
in arrears.
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON CLASS B AND CERTAIN
CLASS A SHARE REDEMPTIONS WILL BE WAIVED.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be
waived on redemptions of Class B shares and of Class A shares that
are subject to a CDSC, unless indicated otherwise, in these
circumstances:
O Redemptions of Class B shares made under a Systematic
Withdrawal Plan (see "How to Redeem Shares"), as long as
your annual redemptions do not exceed 10% of your
account value at the time you establish your Systematic
Withdrawal Plan and 10% of the value of your subsequent
investments (less redemptions) in that account at the
time you notify Investor Services. This waiver does not
apply to Systematic Withdrawal Plan redemptions of Class
A shares that are subject to a CDSC.
O Redemptions made to effect distributions from an
Individual Retirement Account either before or after age
59 , as long as the distributions are based on the life
expectancy or the joint-and-last survivor life
expectancy of you and your beneficiary. These
distributions must be free from penalty under the Code.
O Redemptions made to effect mandatory distributions under
the Code after age 70 from a tax-deferred retirement
plan.
O Redemptions made to effect distributions to participants
or beneficiaries from certain employer-sponsored
retirement plans including those qualified under Section
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401(a) of the Code, custodial accounts under Section
403(b)(7) of the Code and deferred compensation plans
under Section 457 of the Code. The waiver also applies
to certain returns of excess contributions made to these
plans. In all cases, the distributions must be free
from penalty under the Code.
O Redemptions due to death or disability.
O Redemptions made under the Reinvestment Privilege, as
described in "Additional Services and Programs" of this
Prospectus.
O Redemptions made pursuant to the Fund's right to
liquidate your account if you have less than $100
invested in the Fund.
O Redemptions made in connection with certain liquidation,
merger or acquisition transactions involving other
investment companies or personal holding companies.
O Redemptions from certain IRA and retirement plans that
purchased shares prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these
situations, you must notify Investor Services either directly or
through your Selling Broker at the time you make your redemption.
The waiver will be granted once Investor Services has confirmed
that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an
appropriate portion of reinvested dividends on those shares will
be converted into Class A shares automatically. This will occur
no later than the month following eight years after the shares
were purchased, and will result in lower annual distribution fees.
If you exchanged Class B shares into the Fund from another John
Hancock fund, the calculation will be based on the time you
purchased the shares in the original fund. The Fund has been
advised that the conversion of Class B shares to Class A shares
should not be taxable for Federal income tax purposes and should
not change a shareholder's tax basis or tax holding period for the
converted shares.
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HOW TO REDEEM SHARES
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE
FOLLOW THESE PROCEDURES.
You may redeem all or a portion of your shares on any
business day. Your shares will be redeemed at the next NAV
calculated after your redemption request is received in good order
by Investor Services, less any applicable CDSC. The Fund may hold
payment until it is reasonably satisfied that investments recently
made by check or Invest-by-Phone have been collected (which may
take up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you
payment on the next business day. When you redeem your shares,
you may realize a taxable gain or loss depending usually on the
difference between what you paid for them and what you receive for
them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment for up to
seven days or longer, as permitted by Federal securities laws.
- --------------------------------------------------------------------------------
BY TELEPHONE
All Fund shareholders are automatically eligible for the telephone
redemption privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New
York time), Monday through Friday, excluding days on which the Exchange is
closed. Investor Services employs the following procedures to confirm that
instructions receivedby telephone are genuine. Your name, the account
number, taxpayer identification number applicable to the account and other
relevant information may be requested. In addition, telephone instructions are
recorded.
You may redeem up to $100,000 by telephone, but the address on the
account must not have changed for the last thirty days. A check will be
mailedto the exact name(s) and address shown on the account.
If reasonable procedures, such as those described above, are not
followed, the Fund may be liable for any loss due to unauthorized or
fraudulent telephone instructions. In all other cases, neither the Fund nor
Investor Services will be liable for any loss or expense for acting upon
telephone instructions made in accordance with the telephone transaction
procedures mentioned above.
Telephone redemption is not available for IRAs or other tax-qualified
retirement plans or shares of the Fund that are in certificated form.
During periods of extreme economic conditions or market changes,
telephone requests may be difficult to implement due to a large volume of
calls. During these times, you should consider placing redemption requests
in writing or use EASI-Line. EASI-Line's telephone number is 1-800-338-8080.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
BY WIRE
If you have a telephone redemption form on file with the Fund,
redemption proceeds of $1,000 or more can be wired on the next business day
to your designated bank account, and a fee (currently $4.00) will be
deducted. You may also use electronic funds transfer to your assigned bank
account, and the funds are usually collectible after two business days. Your
bank may or may not charge a fee for this service. Redemptions of less than
$1,000 will be sent by check or electronic funds transfer.
This feature may be elected by completing the "Telephone Redemption"
section on the Account Privileges Application included with this Prospectus.
- --------------------------------------------------------------------------------
IN WRITING
Send a stock power or "letter of instruction" specifying the name of the
Fund, the dollar amount or the number of shares to be redeemed, your name,
class of shares, your account number and the additional requirements listed
below that apply to your particular account.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
-------------------- ------------
<S> <C>
Individual, Joint Tenants, A letter of instruction signed
Sole Proprietorship, (with titles where applicable)
Custodial (Uniform by all persons authorized to
Gifts or Transfer to sign for the account, exactly
Minors Act), General as it is registered with the
Partners signature(s) guaranteed.
Corporation, Association A letter of instruction and a corporate resolution,
signed by person(s) authorized to acton the account
with the signature(s) guaranteed.
Trusts A letter of instruction signed by thetrustee(s) with
the signature(s) guaranteed. (If thetrustee's name
is not registered on your account, also provide a copy
of the trust document, certified within the last
60 days.)
</TABLE>
If you do not fall into any of these registration categories, please
call 1-800-225-5291 for further instructions.
- --------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
A signature guarantee is a widely accepted way to protectyou and the
Fund by verifying the signature on your request. It may not be provided by a
notary public. If the net asset value of the shares redeemed is $100,000 or
less, John Hancock Funds may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the
institution meets credit standards established by Investor Services: (i) a
bank; (ii) a securities broker or dealer, including a government or municipal
securities broker or dealer, that is a member of a clearing corporation or
meets
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<PAGE> 92
certain net capital requirements; (iii) a credit union having authority to
issue signature guarantees; (iv) a savings and loan association, a building
and loan association, a cooperative bank, a federal savings bank or
association; or (v) a national securities exchange, a registered securities
exchange or a clearing agency.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
THROUGH YOUR BROKER. Your broker may be able to initiatethe redemption.
Contact your broker for instructions.
- --------------------------------------------------------------------------------
If you have certificates for your shares, you must submitthem with your
stock power or a letter of instructions. Unless you specify to the contrary,
any outstanding Class A shares will be redeemed before Class B shares. You
may not redeem certificated shares by telephone.
- --------------------------------------------------------------------------------
Due to the proportionately high cost of maintaining smallaccounts, the
Fund reserves the right to redeem at net asset value all shares in an account
which holds less than $100 (except accounts under retirement plans) and to
mailthe proceeds to the shareholder, or the transfer agent may impose an
annual fee of$10.00. No account will be involuntarily redeemed or additional
fee imposed, if the valueof the account is in excess of the Fund's minimum
initial investment or if the value of the account falls below the required
minimum as a result of market action. No CDSC will be imposed on involuntary
redemptions of shares.
Shareholders will be notified before these redemptions are to be made
or this fee is imposed, and will have 30 days to purchase additional shares
to bring their account balance up to the required minimum. Unless the number
of shares acquired by further purchases and dividend reinvestments, if any,
exceeds the number of shares redeemed, repeated redemptions from a smaller
account may eventually trigger this policy.
- --------------------------------------------------------------------------------
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
YOU MAY EXCHANGE SHARES OF THE FUND ONLY FOR SHARES OF THE SAME CLASS
OF ANOTHER JOHN HANCOCK FUND.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Contact your registered representative or Selling Broker and
request a prospectus for the John Hancock funds that interest you. Read the
prospectus carefully before exchanging your shares. You can exchange shares of
each class of the Fund only for shares of the same class of another John
Hancock fund. For this purpose, John Hancock funds with only one class of
shares will be treated as Class A, whether or not they have been so designated.
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<PAGE> 93
Exchanges between funds with shares that are not subject to a
CDSC are based on their respective net asset values. No sales
charge or transaction charge is imposed. Class B shares of the
Fund that are subject to a CDSC may be exchanged into Class B
shares of another John Hancock fund without incurring the CDSC;
however, these shares will be subject to the CDSC schedule of the
shares acquired (except that exchanges into the Fund, John Hancock
Short-Term Strategic Income Fund and John Hancock Limited-Term
Government Fund will be subject to the initial fund's CDSC). For
purposes of computing the CDSC payable upon redemption of shares
acquired in an exchange, the holding period of the original shares
is added to the holding period of the shares acquired in an
exchange. However, if you exchange Class B shares purchased prior
to January 1, 1994 for Class B shares of any other John Hancock
Fund, you will be subject to the CDSC schedule in effect on your
initial purchase date.
You may exchange Class B shares of the Fund into shares of a
John Hancock money market fund at net asset value. However, you
will continue to be subject to a CDSC upon redemption. The rate
of the CDSC will be the rate in effect for the original Fund at
the time of exchange.
The Fund reserves the right to require you to keep previously
exchanged shares (and reinvested dividends) in the Fund for 90
days before you are permitted to execute a new exchange. The Fund
may also terminate or alter the terms of the exchange privilege,
upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of
one fund and the purchase of shares in another for Federal income
tax purposes. An exchange may result in a taxable gain or loss.
When you make an exchange, your account registration in both
the existing and new account must be identical. The exchange
privilege is available only in states where the exchange can be
made legally.
Under exchange agreements with John Hancock Funds, certain
dealers, brokers and investment advisers may exchange their
clients' Fund shares, subject to the terms of those agreements and
John Hancock Funds' right to reject or suspend those exchanges at
any time. Because of the restrictions and procedures under those
agreements, the exchanges may be subject to timing limitations and
other restrictions that do not apply to exchanges requested by
shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by
excessive trading, the Fund reserves the right to terminate the
exchange privilege for any person or group that, in John Hancock
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<PAGE> 94
Funds' judgment, is involved in a pattern of exchanges that
coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment
objective and policies, or might otherwise affect the Fund and its
shareholders adversely. The Fund may also temporarily or
permanently terminate the exchange privilege for any person who
makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for
this purpose. Although the Fund will attempt to give you prior
notice whenever it is reasonably able to do so, it may impose
these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial
purchase of Fund shares, you automatically authorize
exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone
exchanges.
2. Call 1-800-225-5291. Have the account number of your
current fund and the exact name in which it is
registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification
number applicable to the account and other relevant
information may be requested. In addition, telephone
instructions are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
- the name and class of the Fund whose shares you
currently own
- your account number
- the name(s) in which the account is registered
- the name of the fund in which you wish your
exchange to be invested
- the number of shares, all shares or dollar amount
you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
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<PAGE> 95
REINVESTMENT PRIVILEGE
IF YOU REDEEM SHARES OF THE FUND, YOU MAY BE ABLE TO REINVEST
ALL OR PART OF THE PROCEEDS IN THE FUND OR ANOTHER JOHN HANCOCK
FUND WITHOUT PAYING AN ADDITIONAL SALES CHARGE.
1. You will not be subject to a sales charge on Class A
shares reinvested in shares of any John Hancock fund
that is otherwise subject to a sales charge as long as
you reinvest within 120 days from the redemption date.
If you paid a CDSC upon a redemption, you may reinvest
at net asset value in the same class of shares from
which you redeemed within 120 days. Your account will
be credited with the amount of the CDSC previously
charged, and the reinvested shares will continue to be
subject to a CDSC. For purposes of computing the CDSC
payable upon a subsequent redemption, the holding period
of the shares acquired through reinvestment will include
the holding period of the redeemed shares.
2. Any portion of your redemption may be reinvested in Fund
shares or in shares of any of the other John Hancock
funds, subject to the minimum investment limit of that
fund.
3. To reinvest, you must notify Investor Services in
writing. Include the Fund's name, the account number
and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT, OR MAKE PERIODIC
DISBURSEMENTS OF FUNDS FROM YOUR RETIREMENT ACCOUNT TO COMPLY WITH
IRS REGULATIONS.
1. You can elect the Systematic Withdrawal Plan at any time
by completing the Account Privileges Application which
is attached to this Prospectus. You can also obtain
this application by calling your registered
representative or by calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your
account.
3. Payments from your account can be made monthly,
quarterly, semi-annually or annually or on a selected
monthly basis to yourself or any other designated payee.
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<PAGE> 96
4. There is no limit on the number of payees you may
authorize, but all payments must be made at the same
time or intervals.
5. It is not advantageous to maintain a Systematic
Withdrawal Plan concurrently with purchases of
additional Class A or Class B shares, because you may be
subject to initial sales charges on your purchases of
Class A shares or to a CDSC on your redemptions of
Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal
Service cannot deliver your checks or if deposits to a
bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR
INVESTING.
1. You can authorize an investment to be automatically
withdrawn each month from your bank for investment in
Fund shares under the "Automatic Investing" and "Bank
Information" sections of the Account Privileges
Application.
2. You can also authorize automatic investment through
payroll deduction by completing the "Direct Deposit
Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation
Program plan at any time.
4. There is no charge to you for this program, and there is
no cost to the Fund.
5. If you have payments being withdrawn from a bank account
and we are notified that the account has been closed,
your withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS MAY ESTABLISH
ACCOUNTS.
1. An individual account will be established for each
participant, but the initial sales charge for Class A
shares will be based on the aggregate dollar amount of
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<PAGE> 97
all participants' investments. To determine how to
qualify for this program, contact your registered
representative or call 1-800-225-5291.
2. The initial aggregate investment of all participants in
the group must be at least $250.
3. There is no additional charge for this program. There
is no obligation to make investments beyond the minimum,
and you may terminate the program at any time.
RETIREMENT PLANS
1. You may use the Fund as a funding medium for various
types of qualified retirement plans, including
Individual Retirement Accounts, Keogh Plans (H.R. 10),
Pension and Profit Sharing Plans (including 401(k)
plans), Tax Sheltered Annuity Retirement Plans (403(b)
Plan) and 457 Plans.
2. The initial investment minimum or aggregate minimum for
any of the above plans is $250. However, accounts being
established as group IRA, SEP, SARSEP, TSA, 401(k) and
457 Plans will be accepted without an initial minimum
investment.
INVESTMENTS, TECHNIQUES AND RISK FACTORS
MORTGAGE-BACKED AND DERIVATIVE SECURITIES. The Fund may
invest in mortgage-backed securities. A mortgage-backed security
is an obligation of an issuer which is backed by a mortgage or
pool of mortgages or a direct interest in an underlying pool of
mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations ("CMOs"), make payments of
both principal and interest at a variety of intervals; others make
semiannual interest payments at a predetermined rate and repay
principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including
those on commercial real estate or residential properties.
Mortgage-backed securities may have less potential for capital
appreciation than comparable fixed-income securities, due to the
likelihood of increased prepayments of mortgages as interest rates
decline. If the Fund buys mortgage-backed securities at a
premium, mortgage foreclosures and prepayments of principal by
mortgagors (which may be made at any time without penalty) may
result in some loss of the Fund's principal investment to the
extent of the premium paid. The value of mortgage-backed
securities may also change due to shifts in the market's
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<PAGE> 98
perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole.
The Fund may also invest in "stripped" mortgage-backed
securities ("SMBS"). SMBS are created when a U.S. Government
agency or a financial institution separates the interest and
principal components of a mortgage-backed security and sells them
as individual securities. The holder of the "principal-only"
security ("PO") receives the principal payments made by the
underlying mortgage-backed security, while the holder of the
"interest-only" security ("IO") receives interest payments from
the same underlying security. The prices of stripped
mortgage-backed securities may be particularly affected by changes
in interest rates. As interest rates fall, prepayment rates tend
to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite
effect. Although the markets for such securities is increasingly
liquid, the Adviser may, in accordance with guidelines adopted by
the Board of Trustees, determine that certain stripped
mortgage-backed securities issued by the U.S. Government, its
agencies or instrumentalities are not readily marketable. If so,
these securities, together with privately-issued stripped
mortgage-backed securities, will be considered illiquid for
purposes of the Fund's limitation of investments of illiquid
securities.
Other types of mortgage-backed securities will likely be
developed in the future, and the Fund may invest in them if the
Adviser determines they are consistent with the Fund's investment
objectives and policies.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up
to 15% of its net assets in illiquid investments, which include
repurchase agreements maturing in more than seven days, certain
stripped mortgage-backed securities, certain over-the-counter
options, restricted securities and securities not readily
marketable. The Fund may also invest up to 15% of its assets in
restricted securities eligible for resale to certain institutional
investors pursuant to Rule 144A under the Securities Act of 1933.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the
purpose of realizing additional (taxable) income, the Fund may
lend to broker-dealers and federally insured banks and savings and
loans portfolio securities amounting to not more than 33% of its
total assets taken at current value and may enter into repurchase
agreements. In a repurchase agreement, the Fund buys a security
subject to the right and obligation to sell it back to the issuer
at the same price plus accrued interest. These transactions must
be fully collateralized at all times. The Fund may reinvest any
cash collateral in short-term highly liquid debt securities.
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<PAGE> 99
However, they may involve some credit risk to the Fund if the
other party should default on its obligation and the Fund is
delayed in or prevented from recovering the collateral.
Securities loaned by the Fund will remain subject to fluctuations
of market value.
WHEN-ISSUED SECURITIES. The Fund may purchase and sell
securities on a forward or "when-issued" basis. When the Fund
engages in when-issued transactions, it relies on the seller or
the buyer, as the case may be, to consummate the transaction.
Failure to consummate the transaction may result in the Fund
losing the opportunity to obtain an advantageous price and yield.
REVERSE REPURCHASE AGREEMENTS. A reverse repurchase
agreement involves the sale of a security by the Fund and its
agreement to repurchase the instrument at a specified time and
price. The Fund will maintain a segregated account consisting of
highly liquid, marketable securities to cover its obligations
under reverse repurchase agreements with selected firms approved
in advance by the Board of Trustees. The Fund will use the
proceeds to purchase other investments. Reverse repurchase
agreements are considered to be borrowings by the Fund and as an
investment practice may be considered speculative. Repurchase
agreements magnify the potential for gain or loss on the portfolio
securities of the Fund and therefore increase the possibility of
fluctuation in the Fund's net asset value. The Fund will limit
its investments in reverse repurchase agreements and other borrow-
ings to no more than 33 1/3% of its total net assets.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. Short-term
trading means the purchase and subsequent sale of a security after
it has been held for a relatively brief period of time.
Short-term trading may have the effect of increasing portfolio
turnover rate. Short-term trading of fixed-income securities
should not increase direct transaction costs since fixed-income
securities are normally traded on a principal basis without
brokerage commissions. The Fund does not invest for the purpose
of seeking short-term profits. The Fund's investment securities
may be changed, however, without regard to the holding period of
these securities (subject to certain tax restrictions), when the
Adviser deems that this action will help achieve the Fund's
objective given a change in an issuer's operations or changes in
general market conditions. A rate of turnover of 100% would occur
if the value of the lesser of purchases and sales of investment
securities for a particular year equaled the average monthly value
of investment securities owned during the year (excluding
short-term securities). A high rate of portfolio turnover (100%
or more) may make it more difficult for the Fund to qualify as
regulated investment company under the Code. The Fund's portfolio
-36-
<PAGE> 100
turnover rate is set forth in the table under "Financial
Highlights."
MORTGAGE "DOLLAR ROLL" TRANSACTIONS. The Fund may enter into
mortgage "dollar roll" transactions with selected banks and
broker-dealers pursuant to which the Fund sells mortgage-backed
securities and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities
on a specified future date. The Fund will only enter into covered
rolls. A "covered roll" is a specific type of dollar roll for
which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward
settlement date of the dollar roll transaction.
OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell
options contracts, financial futures contracts and options on
futures contracts. Options and futures contracts are bought and
sold to manage the Fund's exposure to changing interest rates,
security prices and currency exchange rates. Some options and
futures strategies, including selling futures, buying puts, and
writing calls, tend to hedge the Fund's investment against price
fluctuations. Other strategies, including buying futures, writing
puts, and buying calls, tend to increase market exposure. Options
and futures may be combined with each other or with forward
contracts in order to adjust the risk and return characteristics
of the overall strategy. The Fund may invest in options and
futures based on securities, indices, or currencies, including
options and futures traded on foreign exchanges and options not
traded on exchanges.
Options and futures can be volatile investments and involve
certain risks. If the Adviser applies a hedge at an inappropriate
time or judges market conditions incorrectly, options and futures
strategies may lower the Fund's return. The Fund could also
experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or
if it could not close out its positions because of an illiquid
secondary market. Options and futures do not pay interest, but
may produce capital gains.
The Fund will not engage in a transaction in futures or
options on futures for non-hedging purposes if, immediately
thereafter, the sum of initial margin deposits and premiums
required to establish speculative positions in futures contracts
and options on futures would exceed 5% of the Fund's net assets.
The loss incurred by the Fund investing in futures contracts and
in writing options on futures is potentially unlimited and may
exceed the amount of any premium received. The Fund's
transactions in options and futures contracts may be limited by
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<PAGE> 101
the requirements of the Code or qualification as a regulated
investment company.
RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE
INSTRUMENTS. The risks associated with the Fund's transactions in
options, futures and other derivative instruments, including
mortgage and asset-backed securities, may include some or all of
the following:
Market Risk. Options and futures transactions, as well as other
derivative instruments, involve the risk that the applicable
market will move against the Fund's derivative position and that
the Fund will incur a loss. For derivative contracts other than
purchased options, this loss may exceed the amount of the initial
investment made or the premium received by the Fund. Investments
in mortgage-backed and indexed securities are subject to the
prepayment, extension, interest rate and other market risks
described above.
Leverage and Volatility Risk. Derivative instruments may increase
or leverage the Fund's exposure to a particular market risk, which
may increase the volatility of the Fund's net asset value. The
Fund may partially offset the leverage inherent in derivative
instruments by maintaining a segregated account consisting of cash
and liquid, high grade debt securities, by holding offsetting
portfolio securities or currency positions or by covering written
options.
Correlation Risk. The Fund's success in using derivative
instruments to hedge portfolio assets depends on the degree of
price correlation between the derivative instrument and the hedged
asset. Imperfect correlation may be caused by several factors,
including temporary price disparities among the trading markets
for the derivative instruments, the assets underlying the
derivative instrument and the Fund's portfolio assets.
Credit Risk. Over-the-counter instruments involve a risk that the
issuer or counterparty will fail to perform its contractual
obligations.
Liquidity and Valuation Risk. Some derivative instruments are not
readily marketable or may become illiquid under adverse market
conditions. In addition, during periods of extreme market
volatility, an exchange may suspend or limit trading in an
exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. The staff of the SEC
takes the position that certain over-the-counter options are
subject to the Fund's 15% limit on illiquid investments. The
Fund's ability to terminate over-the-counter derivative
instruments may depend on the cooperation of the counterparties to
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these instruments. For derivative instruments that are not
heavily traded, the only source of price quotations may be the
selling dealer or counterparty.
-39-
<PAGE> 103
<TABLE>
<CAPTION>
JOHN HANCOCK INTERMEDIATE JOHN HANCOCK INTERMEDIATE MATURITY
MATURITY GOVERNMENT FUND GOVERNMENT FUND
<S> <C>
INVESTMENT ADVISER
John Hancock Advisers, Inc. CLASS A AND CLASS B Shares
101 Huntington Avenue PROSPECTUS
Boston, Massachusetts 02199-7603 SEPTEMBER __, 1995
PRINCIPAL DISTRIBUTOR FOR INVESTORS SEEKING TO EARN A HIGH
John Hancock Funds, Inc. LEVEL OF CURRENT INCOME, consistent with
101 Huntington Avenue PRESERVATION OF CAPITAL and maintenance
Boston, Massachusetts 02199-7603 OF LIQUIDITY.
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange
call 1-800-225-5291 101 HUNTINGTON AVENUE
For Investment-by-Phone BOSTON, MASSACHUSETTS 02199-7603
For Telephone Redemption TELEPHONE 1-800-225-5291
For TDD call 1-800-554-6713
</TABLE>
-40-
<PAGE> 104
EXHIBIT C
Annual Report of John Hancock Adjustable U.S. Government Trust (as
proposed to be renamed, John Hancock Intermediate Maturity Government Fund),
dated March 31, 1995.
C-1
<PAGE> 105
EXHIBIT C
JOHN HANCOCK FUNDS
- --------------------------------------------------------------------------------
Adjustable
U.S.
Government
ANNUAL REPORT
March 31, 1995
<PAGE> 106
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles L. Ladner*
Leo E. Linbeck*
Patricia P. McCarter*
Steven R. Pruchansky*
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Frederick L. Cavanaugh
Senior Vice President
James K. Ho
Senior Vice President
Barry Evans
Vice President
Anne McDonley
Vice President
John A. Morin
Vice President
Susan S. Newton
Vice President and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
On behalf of our nearly 700 associates, I'm delighted to welcome you to John
Hancock Funds. As you all know, Transamerica Fund Management Company was
acquired by John Hancock Funds on December 22, 1994, following a favorable
shareholder vote. At that time, all of the Transamerica mutual funds became part
of the John Hancock family of funds.
We're excited about the opportunities this acquisition will bring to
shareholders. The combined firms form a larger, more competitive organization
with more than $13 billion in assets under management and more than 1 million
shareholders. Now with 50 open-end funds, 8 closed-end funds and a full array of
retirement and private account services, John Hancock Funds offers you a broader
selection of investment choices to meet your long-term financial needs. What's
more, the union of the Hancock and Transamerica investment teams gives you
access to some of the top talent in the industry.
The Transamerica name is changing, but the commitment to serving you as
a valued shareholder isn't. Here at John Hancock Funds, our motto is: "We
invest in quality first." It has to do with the way we invest your money and the
way we work with you. Not only do we strive to ensure that your investments are
well-managed, we also take pride in providing the highest quality customer
service. We can't guarantee investment performance; nobody can. The quality of
our service, however, depends totally on us. That is something that we can
guarantee.
In mid-May, we anticipate that all of the Transamerica funds will be
fully integrated into John Hancock's internal shareholder service organization,
John Hancock Investor Services. At that time, not only will you gain exchange
privileges into all John Hancock funds, but your account will be handled by one
of the top-rated service organizations in the industry. To show you how
seriously we take our commitment to quality, you will have access to our service
guarantee. If we make an error in processing a transaction in your account, we
will deposit $25 into it. Or if you have a retirement account, we will waive the
annual fee.
We value your business and look forward to serving your investment needs
in the years to come.
Sincerely,
/s/ Edward J. Boudreau, Jr.
---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 107
BY BARRY H. EVANS FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
ADJUSTABLE
U.S. GOVERNMENT TRUST
REALITY CHECK FOR BOND INVESTORS
"The past 12 months have been hard on many bond investors, especially those who
had grown accustomed to double-digit returns during the early 1990s. As the
economic expansion quickened and both short-term and long-term interest rates
rose, bond prices fell through most of 1994. Though they started to rebound in
the first quarter of this year, many bonds ended the 12-month period with
negative returns.
Investors in John Hancock Adjustable U.S. Government Trust not only
avoided losses, but they did significantly better than investors in most other
funds with a similar objective. For the year ended March 31, 1995, the Fund's
Class A and Class B shares rose 3.98% and 3.33%, respectively, at net asset
value. Those returns compared to a loss of 0.54% for the average adjustable-rate
mortgage fund, according to Lipper Analytical Services.(1)
A VOLATILE CLIMATE FOR BONDS
In early February of 1994, just before the period began, the Federal Reserve
embarked on a new policy designed to dampen economic growth. It raised the
federal funds rate -- the rate banks charge each other for overnight loans --
one-quarter point to 3.25%. That turned out to be the first in a series of rate
hikes by the Fed. Two more quarter-point increases followed in March and April,
two half-point increases in May and August, a three-quarter-point hike in
November, and another half-point increase in February 1995. By the end of the
period, the federal funds rate was 6.00%.
[A 2 1/2" x 3" photo of Barry H. Evans at bottom right. Caption reads: "Barry H.
Evans, Portfolio Manager."]
[CAPTION]
"THE PAST 12 MONTHS HAVE BEEN HARD ON MANY BOND INVESTORS..."
3
<PAGE> 108
John Hancock Funds - Adjustable U.S. Government Fund
[Pie chart with the heading "Portfolio Diversification" at top
of left hand column. The chart is divided into two sections.
Going from left to right: Adjustable-Rate Mortgage-Backed
Securities 98%; Short-Term Investments 2%. A footnote below
states "As a percentage of net assets on March 31, 1995."]
Meanwhile, as economic growth continued at a surprisingly brisk pace and
investors fretted about inflation, long-term interest rates were climbing, too.
The yield on the 30-year U.S. Treasury bond, which had dipped below 6% as
recently as the fall of 1993, topped 8% in the fall of 1994. Because interest
rates and bond prices move in opposite directions, the upshot of all the rate
increases was falling bond prices at both ends of the yield curve.
An additional factor was the continuing decline in the value of the
dollar against certain key overseas currencies, notably the German mark and the
Japanese yen. A falling dollar is worrisome to bond investors for two reasons.
First, it raises the price of imports, which can boost inflation. Second, it
puts pressure on the United States to protect its currency by raising interest
rates.
Finally, during the past year the world's financial markets were rocked
by a series of unexpected and dramatic events, including the precipitous decline
last spring of many high-flying emerging markets in Latin America and Southeast
Asia; the bankruptcy of Orange County, California; the devaluation of the
Mexican peso; and the collapse of Britain's Barings Bank. To the extent such
events contributed to investors' uncertainty about the future, they added to the
upward pressure on interest rates.
TIMELY ROTATION TO HIGHER-COUPON ADJUSTABLES HELPS PERFORMANCE
At the end of March, about 98% of the Fund's assets were in
adjustable-rate mortgages; the balance was in cash. The Fund's average duration
was 2.25 years. Duration measures the extent to which the price of a bond -- or
in this case, a bond fund -- will rise or fall with changes in interest rates.
The longer the duration, the more its price will fluctuate. Had the Fund's
duration been longer than it was earlier this year -- when bond prices began to
rebound -- our performance might have been stronger. Lately, amid signs of a
fading economy, we have been slowly extending the Fund's duration in hopes of
improving total return.
The key to the Fund's above-average performance was a timely rotation
into higher-coupon adjustable-rate mortgages. Last year, interest rates rose an
average of two percentage points. The problem with adjustables is that most can
reset only once a year by a maximum of one percentage point. By moving into
higher-coupon adjustables at the appropriate time, the Fund was able to keep
pace with prevailing rates.
Moreover, the Fund was able to take advantage of the widespread selling
of adjustable-rate mortgages by banks as they prepared for their year-end audits
by federal regulators. The Fund lowered its cash position and increased its
holdings in adjustables in late 1994. That move paid off when adjustables
rebounded in the first two months of 1995.
[CAPTION]
"... ABOUT 98% OF THE FUND'S ASSETS WERE IN ADJUSTABLE RATE MORTGAGES..."
4
<PAGE> 109
John Hancock Funds - Adjustable U.S. Government Fund
[Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended March 31, 1995." The
chart is scaled in increments of 2% from left to right, with -4% on the left
and 4% on the right. Within the chart, there are three solid bars. The first
represents the 3.98% total return for John Hancock Adjustable U.S. Government
Trust: Class A. The second represents the 3.33% total return for John Hancock
Adjustable U.S. Government Trust: Class B. The third represents -0.54% return
for the average adjustable-rate mortgage fund." A footnote below reads: "Total
returns for John Hancock Adjustable U.S. Government Trust are at net asset
value with all distributions reinvested. The average adjustable-rate mortgage
fund is tracked by Lipper Analytical Services.(1) See following page for
historical performance information."]
BRIGHTER OUTLOOK FOR THE REST OF '95
By the end of March, the current economic expansion was 48 months old, a
significant milestone given that the average post-war expansion has lasted only
45 months. Meanwhile, signs were accumulating that after seven rate hikes in
little more than a year, the Fed's monetary policy was finally doing what it was
designed to do and the economy was indeed slowing down. That said, we think
there may be one more inflation spike coming our way. But if so, it's more apt
to signal the peak in the cycle than the first step in a fresh surge, and so
we'd likely view it as a buying opportunity.
Overall, we see a more favorable climate for bonds developing, marked by
slower economic growth and gently falling long-term interest rates. Barring a
recession -- which is not in our current forecast -- we see the yield on the
30-year Treasury bond settling somewhere around 7% instead of dipping as low as
6% again. Government securities may outperform corporate securities, for which
credit risk can be an issue in a slowing economy. And mortgage securities --
which do best under stable interest-rate conditions -- may perform best of all.
Given the favorable climate, we'll be looking for more opportunities in the
months ahead to extend our duration slightly.
In February 1995, Barry H. Evans began managing John Hancock Adjustable
U.S. Government Fund. Mr. Evans, who joined John Hancock in 1986, is a vice
president and head of the company's government fixed-income department.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
[CAPTION]
"... WE SEE A MORE FAVORABLE CLIMATE FOR BONDS ..."
5
<PAGE> 110
NOTES TO PERFORMANCE INFORMATION
John Hancock Funds - Adjustable U.S. Government Trust
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data are supplied for the period ended March 31, 1995,
with all distributions reinvested in shares. The average annualized total
returns for Class A Shares for the 1-year period and since inception on December
31, 1991 were 0.33% and 3.35%, respectively, and reflect payment of the maximum
sales charge of 3.50%. The average annualized total returns for Class B shares
for the 1-year and since inception on December 31, 1991 were 0.33% and 3.24%,
respectively, and reflect the applicable contingent deferred sales charge
(maximum contingent deferred sales charge is 3% and declines to 0% over 5
years). The standard SEC yields for the 31-day period ended March 31, 1995 for
Class A and Class B shares were 6.20% and 5.78%, respectively. All performance
data shown represent past performance and should not be considered indicative of
future performance. Returns and principal values of Fund investments will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Performance is affected by a 12b-1 plan.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT OVER LIFE OF THE FUND
[Adjustable U.S. Government Trust
Class A shares
Line chart with the heading Adjustable U.S. Government Trust: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines.
The first line represents the value of the Lehman Government
Bond Index and is equal to $12,218** as of March 31, 1995. The
second line represents the value of the hypothetical $10,000
investment made in the Adjustable U.S. Government Trust on
December 31, 1991, before sales charge, and is equal to
$11,308 as of March 31, 1995. The third line represents the
Adjustable U.S. Government Trust after sales charge and is
equal to $10,916 as of March 31, 1995. The fourth line
represents the value of the Lipper Adjustable Rate Mortgage
Fund Index and is equal to $10,782* as of March 31, 1995.
Adjustable U.S. Government Trust
Class B shares
Line chart with the heading Adjustable U.S. Government Trust:
Class B, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are
three lines.
The first line represents the value of the Lehman Government
Bond Index and is equal to $12,218** as of March 31, 1995.
The second line represents the value of the hypothetical
$10,000 investment made in the Adjustable U.S. Government
Trust on December 31, 1991, before contingent deferred sales
charge, and is equal to $11,291 as of March 31, 1995. The
third line represents the Adjustable U.S. Government Trust
after contingent deferred sales charge and is equal to $11,092
as of March 31, 1995. The fourth line represents the Lipper
Adjustable Rate Mortgage Fund Index and is equal to $10,782*.
*The Lipper Adjustable Rate Mortgage Fund Index is a
non-weighted index and invests in at least 65% of assets in
adjustable rate mortgage securities or other securities
collateralized by or representing an interest in mortgages.]
**The Lehman Government Bond Index is an unmanaged index, which
measures the performance of U.S. Treasury bonds and U.S.
Government Agency bonds.
6
<PAGE> 111
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust (Fund)
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON MARCH 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
<TABLE>
Statement of Assets and Liabilities
March 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investment in corresponding Portfolio, at value
2,296,605 shares (cost - $22,807,641) - Note A ............ $ 22,460,793
Dividends receivable from Portfolio ....................... 138,216
Receivable from John Hancock Advisers, Inc. -
Note B .................................................. 40,491
Deferred organization expenses - Note A ................... 16,956
Miscellaneous assets ...................................... 8,829
-----------
Total Assets ............................. 22,665,285
-----------------------------------------------------------
LIABILITIES:
Dividend payable ............................................ 48,360
Payable for Trust shares repurchased ........................ 142,111
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 365
Accounts payable and accrued expenses ....................... 19,033
-----------
Total Liabilities ........................ 209,869
-----------------------------------------------------------
NET ASSETS:
Capital paid-in ............................................. 23,573,736
Accumulated net realized loss on investments ................ (787,809)
Net unrealized depreciation of investments .................. (346,848)
Undistributed net investment income ......................... 16,337
-----------
Net Assets ............................... $ 22,455,416
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net assets and shares of beneficial interest
outstanding - unlimited number of shares authorized
with $0.01 per share par value, respectively)
Class A - $12,949,755/1,323,395 ............................. $ 9.79
==============================================================================
Class B - $9,505,661/971,446 ................................ $ 9.79
==============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($9.79 x 103.63%) ................................. $ 10.15
==============================================================================
<FN>
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Year ended March 31, 1995
<S> <C>
INVESTMENT INCOME:
Net Investment income from corresponding Portfolio -
Note A ................................................... $1,481,341
----------
Expenses:
Distribution/service fee - Note B
Class A .............................................. 44,214
Class B .............................................. 98,958
Transfer agent fee ....................................... 41,914
Investment management fee - Note B ....................... 28,682
Registration and filing fees ............................. 24,999
Custodian fee ............................................ 18,512
Printing ................................................. 11,488
Organization expense - Note A ............................ 9,704
Auditing fee ............................................. 8,000
Trustees' fees ........................................... 7,837
Miscellaneous ............................................ 3,004
Legal fees ............................................... 2,500
Advisory board fee ....................................... 257
----------
Total Expenses ........................... 300,069
Less expenses reimbursable
by John Hancock Advisers,
Inc. - Note B ............................ (156,818)
-----------------------------------------------------------
Net Expenses ............................. 143,251
-----------------------------------------------------------
Net Investment Income .................... 1,338,090
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
FROM CORRESPONDING PORTFOLIO NOTE A
Net realized loss on investments sold ...................... (520,533)
Change in net unrealized appreciation/depreciation
of investments ........................................... 111,364
-----------
Net Realized and Unrealized
Loss on Investments from
Corresponding Portfolio .................. (409,169)
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................ $ 928,921
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 112
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust (Fund)
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1995 1994
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................................................................ $ 1,338,090 $ 1,792,759
Net realized loss on investments sold from corresponding Portfolio ........................... (520,533) (210,326)
Change in net unrealized appreciation/depreciation of investments
from corresponding Portfolio ............................................................... 111,364 (453,740)
------------ ------------
Net Increase in Net Assets Resulting from Operations ....................................... 928,921 1,128,693
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.4823 and $0.4103 per share, respectively) .................................... (858,632) (1,297,489)
Class B - ($0.4220 and $0.3446 per share, respectively) .................................... (466,720) (495,495)
------------ ------------
Total Distributions to Shareholders ....................................................... (1,325,352) (1,792,984)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET* .......................................................... (13,084,232) (10,425,306)
------------ ------------
NET ASSETS:
Beginning of period .......................................................................... 35,936,079 47,025,676
------------ ------------
End of period (including undistributed net investment income of $16,337 and $3,599,
respectively) .............................................................................. $ 22,455,416 $ 35,936,079
============ ============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------
1995 1994
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ................................................... 402,099 $ 3,948,024 2,545,099 $ 25,521,547
Shares issued to shareholders in reinvestment
of distributions ............................................ 53,589 522,853 91,861 920,605
---------- ------------ ------------ ------------
455,688 4,470,877 2,636,960 26,442,152
Less shares repurchased ....................................... (1,590,669) (15,565,847) (3,489,129) (34,952,816)
---------- ------------ ------------ ------------
Net decrease .................................................. (1,134,981) $(11,094,970) (852,169) $ (8,510,664)
========== ============ ============ ============
CLASS B
Shares sold ................................................... 244,622 $ 2,378,527 604,333 $ 6,069,244
Shares issued to shareholders in reinvestment
of distributions ............................................ 30,065 293,677 32,414 324,874
---------- ------------ ------------ ------------
274,687 2,672,204 636,747 6,394,118
Less shares repurchased ....................................... (478,404) (4,661,466) (829,920) (8,308,760)
---------- ------------ ------------ ------------
Net decrease .................................................. (203,717) $ (1,989,262) (193,173) $ (1,914,642)
========== ============ ============ ============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS PAID TO
SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE
FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND
REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE CORRESPONDING DOLLAR
VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 113
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust (Fund)
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows. The per share amounts and ratios which are shown reflect income and
expenses including the Fund's proportionate share of its corresponding
Portfolio's income and expenses. It should be read in conjunction with its
corresponding Portfolio's Financial Statements and notes thereto.
- --------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1991
YEAR ENDED MARCH 31, (COMMENCEMENT
----------------------------- OF OPERATIONS)
1995(d) 1994 1993 TO MARCH 31, 1992
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................. $ 9.89 $ 10.05 $ 10.03 $ 10.00 (b)
Net Investment Income ............................................ 0.49 0.41 0.58 0.17
Net Realized and Unrealized Gain (Loss) on Investments ........... (0.11) (0.16) 0.02 0.03
------- ------- ------- -------
Total from Investment Operations .............................. 0.38 0.25 0.60 0.20
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ............................. (0.48) (0.41) (0.58) (0.17)
------- ------- ------- -------
Net Asset Value, End of Period ................................... $ 9.79 $ 9.89 $ 10.05 $ 10.03
======= ======= ======= =======
Total Investment Return at Net Asset Value ....................... 3.98% 2.51% 6.08% 1.96%(c)
Total Adjusted Investment Return at Net Asset Value (a) .......... 3.43% 2.27% 5.53% 0.84%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ........................ $12,950 $24,310 $33,273 $13,775
Ratio of Expenses to Average Net Assets** ........................ 0.80% 0.75% 0.50% 0.50%*
Ratio of Adjusted Expenses to Average Net Assets(a) .............. 1.35% 0.99% 1.05% 1.62%*
Ratio of Net Investment Income to Average Net Assets** ........... 4.91% 4.09% 5.47% 6.47%*
Ratio of Adjusted Net Investment Income to Average Net Assets(a).. 4.36% 3.85% 4.92% 5.35%*
**Expense Reimbursement per share ................................ $ 0.05 $ 0.002 $ 0.06 $ 0.11
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS, AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 114
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust (Fund)
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1991
YEAR ENDED MARCH 31, (COMMENCEMENT
----------------------------- OF OPERATIONS)
1995(d) 1994 1993 TO MARCH 31, 1992
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................ $ 9.89 $ 10.05 $ 10.03 $ 10.00 (b)
Net Investment Income ........................................... 0.43 0.34 0.51 0.15
Net Realized and Unrealized Gain (Loss) on Investments .......... (0.11) (0.16) 0.02 0.03
------ -------- ------- -------
Total from Investment Operations ............................. 0.32 0.18 0.53 0.18
Less Distributions:
Dividends from Net Investment Income ............................ (0.42) (0.34) (0.51) (0.15)
------ -------- ------- -------
Net Asset Value, End of Period .................................. $ 9.79 $ 9.89 $ 10.05 $ 10.03
====== ======== ======= =======
Total Investment Return at Net Asset Value ...................... 3.33% 1.85% 5.40% 1.80%(c)
Total Adjusted Investment Return at Net Asset Value ............. 2.78% 1.61% 4.85% 0.68%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ....................... $9,506 $ 11,626 $13,753 $ 1,630
Ratio of Expenses to Average Net Assets** ....................... 1.45% 1.40% 1.15% 1.15%*
Ratio of Adjusted Expenses to Average Net Assets(a) ............. 2.00% 1.64% 1.70% 2.27%*
Ratio of Net Investment Income to Average Net Assets** .......... 4.26% 3.44% 4.82% 5.85%*
Ratio of Adjusted Net Investment Income to Average Net Assets(a) 3.71% 3.20% 4.27% 4.73%*
** Expense Reimbursement per share ............................... $ 0.05 $ 0.002 $ 0.06 $ 0.11
<FN>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 115
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund (Portfolio)
THE STATEMENT OF ASSETS AND LIABILITIES IS THE PORTFOLIO'S BALANCE SHEET AND
SHOWS THE VALUE OF WHAT THE PORTFOLIO OWNS, IS DUE AND OWES ON MARCH 31, 1995.
YOU'LL ALSO FIND THE NET ASSET VALUE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
United States government and agencies obligations
(cost - $22,027,578) ........................... $ 21,864,201
Joint repurchase agreement (cost - $457,000) ..... 457,000
Corporate savings account ........................ 139
------------
22,321,340
Receivable for investments sold .................... 84,585
Interest receivable ................................ 186,357
Receivable from John Hancock Advisers, Inc. -
Note B............................................ 15,733
------------
Total Assets .................... 22,608,015
------------------------------------------------
LIABILITIES:
Dividend payable ................................... 138,216
Payable to John Hancock Advisers, Inc. - Note B .... 17,191
Accounts payable and accrued expenses .............. 3,138
------------
Total Liabilities ............... 158,545
------------------------------------------------
NET ASSETS:
Capital paid-in .................................... 23,587,934
Accumulated net realized loss on investments ....... (991,632)
Net unrealized depreciation of investments ......... (163,377)
Undistributed net investment income ................ 16,545
------------
Net Assets ...................... $ 22,449,470
================================================
NET ASSET VALUE PER SHARE:
(Based on 2,296,605 shares of beneficial interest
outstanding - unlimited number of shares authorized
with $0.01 per share par value) ................... $ 9.78
==================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE PORTFOLIO'S INVESTMENT INCOME EARNED
AND EXPENSES INCURRED IN OPERATING THE PORTFOLIO. IT ALSO SHOWS NET GAINS
(LOSSES) FOR THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Year ended March 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest .................................................................... $ 1,645,274
-----------
Expenses:
Investment management fee - Note B ........................................ 114,779
Custodian fee ............................................................. 55,332
Organization expense - Note A ............................................. 9,208
Auditing fee .............................................................. 7,999
Printing .................................................................. 4,266
Trustees' fees ............................................................ 4,087
Legal fees ................................................................ 2,500
Miscellaneous ............................................................. 1,695
Transfer agent fee ........................................................ 518
Advisory board fee ........................................................ 257
-----------
Total Expenses ........................................... 200,641
Less expenses reimbursable
by John Hancock Advisers,
Inc. - Note B ............................................ (57,170)
------------------------------------------------------------------------
Net Expenses ............................................. 143,471
------------------------------------------------------------------------
Net Investment Income .................................... 1,501,803
------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold ....................................... (720,821)
Change in net unrealized appreciation/depreciation
of investments ............................................................ 286,551
-----------
Net Realized and Unrealized
Loss on Investments ...................................... (434,270)
------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................................ $ 1,067,533
========================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 116
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund (Portfolio)
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1995 1994
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ................................................................... $ 1,501,803 $ 1,973,460
Net realized loss on investments sold ................................................... (720,821) (143,030)
Change in net unrealized appreciation/depreciation of investments ....................... 286,551 (492,360)
------------ ------------
Net Increase in Net Assets Resulting from Operations .................................. 1,067,533 1,338,070
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.4250 and $0.4357 per share, respectively) ...... (1,481,230) (1,997,044)
Distributions in excess of net investment income ........................................ -- (4,028)
------------ ------------
Total Distributions to Shareholders ................................................. (1,481,230) (2,001,072)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET* ..................................................... (12,957,678) (10,389,677)
------------ ------------
NET ASSETS:
Beginning of period ..................................................................... 35,820,845 46,873,524
------------ ------------
End of Period (including undistributed net investment income of $16,545 and distributions
in excess of net investment income of ($4,028), respectively) ......................... $ 22,449,470 $ 35,820,845
============ ============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------
1995 1994
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold .............................................. 633,453 $ 6,228,642 3,000,982 $ 30,100,940
Less shares repurchased................................... (1,959,462) (19,186,320) (4,043,184) (40,490,617)
---------- ------------ ---------- ------------
Net decrease ............................................. (1,326,009) $(12,957,678) (1,042,202) $(10,389,677)
========== ============ ========== ============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE PORTFOLIO'S
NET ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE
REFLECTS EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS
PAID TO SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS
INVESTED IN THE PORTFOLIO. THE FOOTNOTE ILLUSTRATES THE NUMBER OF PORTFOLIO
SHARES SOLD AND REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE
CORRESPONDING DOLLAR VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 117
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund (Portfolio)
<TABLE>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1991
(COMMENCEMENT
YEAR ENDED MARCH 31, OF OPERATIONS)
---------------------------------
1995(b) 1994 1993 TO MARCH 31, 1992
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ....................... $22,449 $35,821 $46,874 $15,348
Ratio of Expenses to Average Net Assets ** ...................... 0.50% 0.50% 0.50% 0.50%*
Ratio of Adjusted Expenses to Average Net Assets (a) ............ 0.70% 0.59% 0.62% 0.85%*
Ratio of Net Investment Income to Average Net Assets ............ 5.19% 4.29% 5.53% 6.85%*
Ratio of Adjusted Net Investment Income to Average Net Assets (a) 4.99% 4.20% 5.41% 6.50%*
Portfolio Turnover Rate ......................................... 341% 244% 186% 1%
<FN>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Portfolio.
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS
PRESENTED IN THE FINANCIAL STATEMENTS BY EXPRESSING THEM IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 118
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund (Portfolio)
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
THE ADJUSTABLE U.S. GOVERNMENT FUND ON MARCH 31, 1995. IT'S DIVIDED INTO TWO
MAIN CATEGORIES: U.S. GOVERNMENT AND AGENCIES OBLIGATIONS AND SHORT-TERM
INVESTMENTS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION,
ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
March 31, 1995
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS
FEDERAL HOME LOAN MORTGAGE CORP,
Adjustable Rate Mortgage
Due 10-01-18 ...................... 5.375% $ 155 $ 153,973
Due 05-01-17 ...................... 5.627 12 11,687
Due 02-01-19 ...................... 5.839 32 31,692
Due 10-01-18 ...................... 5.856 283 280,708
Due 05-01-17 ...................... 6.375 54 53,674
Due 08-01-17 ...................... 6.750 22 21,769
Due 01-01-04 ...................... 7.240 505 508,195
Due 10-01-19 ...................... 7.334 2,389 2,419,886
Due 03-01-19 ...................... 7.457 2,057 2,088,314
Due 10-01-18 ...................... 7.750 60 59,435
Due 12-01-01 ...................... 9.500 32 32,958
Due 01-01-01 ...................... 11.000 16 16,982
Due 01-01-11 ...................... 13.000 47 52,582
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
ADJUSTABLE RATE MORTGAGE
Due 12-01-17 ...................... 5.250 243 243,350
Due 05-01-16 ...................... 5.625 7 6,432
Due 07-01-18 ...................... 5.875 228 228,454
Due 04-01-19 ...................... 5.958 80 80,424
Due 05-01-17 ...................... 6.000 54 54,153
Due 04-01-16 ...................... 6.110 554* 552,650
Due 03-01-14 ...................... 6.439 35* 35,463
Due 06-01-14 ...................... 6.439 25 24,466
Due 06-01-19 ...................... 6.887 1,004 1,014,704
Due 06-01-18 ...................... 6.892 1,856* 1,917,288
Due 12-01-21 ...................... 6.912 1,523* 1,539,172
Due 04-01-18 ...................... 6.946 2,722* 2,762,962
Due 07-01-16 ...................... 7.000 47* 47,360
Due 01-01-28 ...................... 7.100 889* 898,134
Due 11-01-13 ...................... 7.120 106 107,109
Due 10-01-19 ...................... 7.160 1,659* 1,676,729
Due 09-01-18 ...................... 7.196 2,199 2,229,739
Due 03-01-27 ...................... 7.350 41 40,154
Due 09-01-18 ...................... 7.623 1,535 1,566,354
Due 05-01-17 ...................... 8.451 259 273,047
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 119
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
<S> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 07-15-01................................................... 9.000% $ 17 $ 17,314
30 Yr SF Pass thru Ctf 07-20-04................................................... 10.000 167* 173,340
30 Yr SF Pass thru Ctf 06-15-16................................................... 10.500 47 50,828
30 Yr SF Pass thru Ctf 05-15-15................................................... 11.500 8* 9,363
30 Yr SF Pass thru Ctf 07-15-05 to 05-15-14....................................... 12.000 312 350,375
30 Yr SF Pass thru Ctf 07-15-15................................................... 12.500 67 75,335
GNMA II Due 03-20-18.............................................................. 11.500 144 157,647
-----------
TOTAL U.S. GOVERNMENT AND
AGENCIES OBLIGATIONS
(Cost $22,027,578) (97.39%) 21,864,201
------ -----------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (2.04%)
Investment in a joint repurchase
agreement transaction with
U.B.S. Securities Inc. -
Dated 03-31-95, Due 04-03-95
(secured by U.S. Treasury Bonds,
6.25% Due 08-15-23 and by
U.S. Treasury Notes, 5.250%
thru 9.125% due 07-31-98
thru 05-15-01) - Note A........................................................... 6.125 457 457,000
-----------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%................................................................ 139
-----------
TOTAL SHORT-TERM INVESTMENTS (2.04%) 457,139
------ -----------
TOTAL INVESTMENTS (99.43%) $22,321,340
====== ===========
<FN>
* Securities, other than short-term investment, newly added to the portfolio
during the year ended March 31, 1995.
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Portfolio.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust and Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Fund, (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of five series portfolios: John Hancock Adjustable U.S.
Government Trust (the "Fund"), John Hancock Investment Quality Bond Trust, John
Hancock Government Securities Trust, John Hancock U.S. Government Trust, and
John Hancock Intermediate Government Trust. The Trustees may authorize the
creation of additional Funds from time to time to satisfy various investment
objectives. Effective December 22, 1994, (see Note B), the Trust and Funds
changed names by replacing the word Transamerica with John Hancock.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under the terms of a distribution
plan, have exclusive voting rights regarding such distribution plan. Class A
Shares are subject to an initial sales charge of up to 3.50% and a 12b-1
distribution plan. Class B Shares are subject to a contingent deferred sales
charge and a separate 12b-1 distribution plan. The Portfolio has only one class
of shares.
The Fund invests substantially all of its assets in John Hancock Adjustable
U.S. Government Fund (the "Portfolio"), which has the same investment objective
as the Fund. Because the Fund invests substantially all of its assets in shares
of the Portfolio, certain Portfolio information, including the Fund's share of
Portfolio expenses, is included in these notes and elsewhere in the financial
statements. At March 31, 1995, the Fund owned 100% of the shares of the
Portfolio. The following is a summary of significant accounting policies of the
Fund and the Portfolio.
VALUATION OF INVESTMENTS As of March 31, 1995, the Fund's only investment is
shares of the Portfolio which are valued daily at the net asset value of the
Portfolio at the close of trading on the New York Stock Exchange. Securities
held by the Portfolio are valued on the basis of market quotations, valuations
provided by independent pricing services or, at fair value as determined in
good faith in accordance with procedures approved by the Trustees. Short-term
debt investments maturing within 60 days are valued by the Portfolio at
amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Portfolio, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc., a wholly-owned subsidiary of The Berkeley Financial Group, may participate
in a joint repurchase agreement transaction. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Portfolio's
custodian bank receives delivery of the underlying securities for the joint
account on the Portfolio's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
DISCOUNT ON SECURITIES The Portfolio accretes discount from par value on
securities from either the date of issue or the date of purchase over the life
of the security, as required by the Internal Revenue Code.
FEDERAL INCOME TAXES The Fund and Portfolio's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investment companies and to distribute all of their respective taxable income,
including any net realized gain on investments, to their respective
shareholders. Therefore, no federal income tax provision is required for either
the Fund or Portfolio. For federal income tax purposes at December 31, 1994, the
Fund has approximately $562,000 of capital loss carryforwards available, to the
extent provided by regulations, to offset future net realized capital gains. If
such carryforwards are used by the Fund, no capital gain distrib-
16
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust and Fund
utions will be made. The Fund's capital loss carryforwards expire as follows:
2001 - $107,000 and 2002 - $455,000. The Portfolio has approximately $906,000 of
capital loss carryforwards available which expire as follows: 2000 -- $56,000,
2001 -- $23,000 and 2002 - $827,000. The Fund's and the Portfolio's tax year end
are December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
held by the Portfolio is recorded on the accrual basis.
The Fund and Portfolio record all distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for the effect of expenses
that may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund and/or Portfolio. Expenses which are not identifiable to a
specific Fund and/or Portfolio are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and type of
expense and the relative sizes of the Funds and/or Portfolio.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares of the Fund based on the appropriate net assets of the respective
classes. Distribution/service fees if any, are calculated daily at the class
level of the Fund based on the appropriate net assets of each class of the Fund
and the specific expense rate(s) applicable to each class of the Fund.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund and Portfolio have been capitalized and are being charged to operations
ratably over a period not to exceed five years which began with the commencement
of operations of the Fund and Portfolio.
RECLASSIFICATIONS Certain reclassifications have been made to 1994 amounts to
permit comparisons to the 1995 presentations.
NOTE B --
MANAGEMENT FEE,
ADMINISTRATIVE SERVICES AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
On December 22, 1994, John Hancock Advisers, Inc. (the "Adviser"), a wholly
owned subsidiary of The Berkeley Financial Group, became the investment adviser
for the Fund and Portfolio with approval of the Trustees and shareholders of the
Fund. The former investment manager was Transamerica Fund Management Company
("TFMC").
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.50% of the Fund's average daily net asset value. Of this amount 0.40%
represents investment advisory fees paid by the Portfolio and indirectly by the
Fund through its investment in the Portfolio. The remaining 0.10% is for
administrative fees paid directly by the Fund. This fee structure is consistent
with the former agreement with TFMC. For the period ended March 31, 1995, the
Fund's fee earned by the Adviser and TFMC amounted to $7,171 and $21,511,
respectively, resulting in a total fee of $28,682. The Portfolio's advisory fee
earned by the Adviser and TFMC amounted to $28,694 and $86,085, respectively,
resulting in a total fee of $114,779.
The Adviser and TFMC, for their respective periods, provided administrative
services to the Fund and Portfolio pursuant to an administrative service
agreement through January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund and Portfolio, exclusive
of certain expenses prescribed by state law, are in excess of the most
restrictive state limit where the Fund and Portfolio is registered to sell
shares of beneficial interest, the fee payable to the Adviser will be reduced to
the extent of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses. The current limits are
2.5% of the first $30,000,000 of the Fund's and Portfolio's average daily net
asset value, 2.0% of the next $70,000,000 and 1.5% of the remaining average
daily net asset value.
17
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust and Fund
The Adviser and TFMC, for their respective periods, voluntarily agreed to
limit the Fund's and Portfolio's expenses further to the extent required to
prevent the aggregate expenses of the Fund and Portfolio from exceeding on an
annual basis 0.75% and 1.40% of the average daily net asset value of Class A and
Class B shares, respectively. Accordingly, for the period ended March 31, 1995,
the reduction to the Adviser's and TFMC's fees, collectively with any amounts
not borne by the Fund by virtue of the most restrictive state expense limit,
amounted to $39,206 and $117,612, respectively. The reduction to the Adviser's
and TFMC's fees amounted to $14,294 and $42,876, respectively for the Portfolio.
The voluntary waivers may be discontinued at any time.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a wholly-owned
subsidiary of the Adviser, became the principal underwriter of the Fund. Prior
to this date, Transamerica Fund Distributors, Inc. ("TFD") served as the
principal underwriter and distributor of the Fund. For the period ended March
31, 1995, JH Funds and TFD received net sales charges of $24,555 with regard to
sales of Class A shares of the Fund. Out of this amount, $4,090 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, and $20,465 was paid as sales commissions to unrelated broker-dealers.
Class B shares of the Fund which are redeemed within six years of purchase
will be subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 3.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds, formerly TFD, and are used in whole or in
part to defray its expenses related to providing distribution related services
to the Fund in connection with the sale of Class B shares. For the period ended
March 31, 1995, contingent deferred sales charges amounted to $54,072.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments for distribution
and service expenses which in total will not exceed on an annual basis 0.25% of
the Fund's average daily net assets attributable to Class A shares and 1.00% of
the Fund's average daily net assets attributable to Class B shares, to reimburse
for its distribution/service costs. Up to a maximum of 0.25% of such payments
may be service fees as defined by the amended Rules of Fair Practice of the
National Association of Securities Dealers which became effective July 7, 1993.
Under the amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances. This fee structure and
plan is similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement between the
Fund and John Hancock Investor Services Corporation ("Investor Services"), a
wholly-owned subsidiary of The Berkeley Financial Group, for the period between
December 22, 1994 and May 12, 1995, inclusive under which Investor Services
processed telephone transactions on behalf of the Fund. As of May 15, 1995, the
Fund and the Portfolio entered into a full service transfer agent agreement with
Investor Services. Prior to this date, The Shareholder Services Group was the
transfer agent. The Fund and the Portfolio will pay Investor Services a fee
based on transaction volume and number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust, until December 22,
1994. During the period ended March 31, 1995, the Fund and the Portfolio paid
legal fees of $3,878 to Baker & Botts.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates as well as Trustee of the Fund and Portfolio. The compensation of
unaffiliated Trustees is borne by the Fund and Portfolio. Effective with the
fees paid for 1995, the unaffiliated Trustees may elect to defer their receipt
of this compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Fund and Portfolio will make investments into other John Hancock
Funds, as applicable, to cover its liability with regard to the deferred
compensation. Investments to cover the deferred compensation
18
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Trust and Fund
liability will be recorded on the books as other assets. The deferred
compensation liability will be marked to market on a periodic basis and income
earned by the investment will be recorded on the books.
The Fund and Portfolio have an independent advisory board composed of certain
members of the former Transamerica Board of Trustees who provide advice to the
current Trustees in order to facilitate a smooth management transition for which
the Fund and Portfolio pay a fee to the advisory board and its counsel.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities by the Portfolio, other than
short-term obligations, during the period ended March 31, 1995 aggregated
$93,321,962 and $103,295,732, respectively.
The cost of investments owned by the Portfolio at March 31, 1995 for Federal
income tax purposes was $22,484,578. Gross unrealized appreciation and
depreciation of investments aggregated $72,906, and $236,283, respectively,
resulting in net unrealized depreciation of $163,377.
19
<PAGE> 124
John Hancock Funds - Adjustable U.S. Government Trust and Fund
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Bond Fund --
John Hancock Adjustable U.S. Government Fund and
John Hancock Adjustable U.S. Government Trust
We have audited the accompanying statements of assets and liabilities
of John Hancock Adjustable U.S. Government Fund (the Portfolio) and John Hancock
Adjustable U.S. Government Trust (the Fund) (formerly the Transamerica
Adjustable U.S. Government Fund and Transamerica U.S. Government Trust,
respectively), two of the six portfolios constituting John Hancock Bond Fund
(formerly Transamerica Bond Fund), (the Trust), including the schedule of
investments of the Portfolio, as of March 31, 1995, and the related statements
of operations for the year then ended and the statements of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended and for the
period from December 31, 1991 (commencement of operations) to March 31, 1992.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures for the Portfolio included confirmation of securities
owned by the Portfolio as of March 31, 1995, by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the respective financial
positions of the John Hancock Adjustable U.S. Government Fund and the John
Hancock Adjustable U.S. Government Trust, at March 31, 1995, the results of
their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended and their financial highlights
for each of the three years in the period then ended and for the period from
December 31, 1991 to March 31, 1992, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
May 15, 1995
20
<PAGE> 125
ADDITIONAL INFORMATION
John Hancock Funds - Adjustable U.S. Government Trust
On December 16, 1994 , a special meeting of John Hancock (formerly Transamerica)
Bond Fund (the "Trust") in respect of John Hancock (formerly Transamerica)
Adjustable U.S. Government Trust (the "Fund") was held involving the election of
trustees and certain other matters concerning the Fund.
Specifically, shareholder's first approved a new investment management
agreement between the Trust on behalf of the Fund and John Hancock Advisers,
Inc. on substantially similar terms of the prior investment management
agreement, to take effect on December 22, 1994, the date of the consummation of
the acquisition of Transamerica Fund Management Company by The Berkeley
Financial Group. The shareholder votes tallied were 1,530,513 FOR, 41,165
AGAINST and 39,324 ABSTAINING.
The shareholders next approved new Plans of Distribution for each Class A and
Class B shares of the Fund, also effective on December 22, 1994, and also on
substantially the same terms as the prior Plans of Distribution. The Class A
shareholder votes tallied were 1,054,852 FOR, 40,836 AGAINST and 25,569
ABSTAINING. The Class B shareholder votes tallied were 529,095 FOR, 651 AGAINST
and 19,048 ABSTAINING.
The shareholders also voted to ratify the selection of Ernst & Young, LLP as
independent auditors for the Fund for the fiscal year ending March 31, 1995, and
the votes tallied were 1,546,114 FOR, 33,626 AGAINST and 33,626 ABSTAINING.
Lastly, the following trustees were elected to serve until their respective
successors shall become duly elected and qualified, with the votes tabulated as
indicated:
<TABLE>
<CAPTION>
NAME OF TRUSTEE FOR WITHHOLD
- --------------- --- --------
<S> <C> <C>
Edward J. Boudreau, Jr. ........ 1,512,555 98,449
James F. Carlin ................ 1,512,555 98,449
William H. Cunningham .......... 1,512,555 98,449
Charles L. Ladner .............. 1,512,555 98,449
Leo E. Linbeck, Jr. ............ 1,512,555 98,449
Patricia P. McCarter ........... 1,512,555 98,449
Steven R. Pruchansky ........... 1,512,555 98,449
Norman H. Smith ................ 1,512,555 98,449
John P. Toolan ................. 1,512,555 98,449
</TABLE>
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the dividends of the Fund during their tax year ended December 31,
1994. All of the dividends paid for the tax year are taxable as ordinary income.
None of the 1994 dividends qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1995 U.S. Treasury Department Form 1099-DIV in
January 1996. This will reflect the total of all distributions which are taxable
for calendar year 1995.
21
<PAGE> 126
NOTES
John Hancock Funds - Adjustable U.S. Government
22
<PAGE> 127
NOTES
John Hancock Funds - Adjustable U.S. Government
23
<PAGE> 128
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
[A 1/2" by 1/2" John Hancock Funds Logo in upper left hand corner of the page.
A box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Adjustable U.S. Government. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[A recycled logo in lower left hand corner with the caption "Printed on Recycled
Paper."]
JHF T320A 03/95
<PAGE> 129
JOHN HANCOCK U.S. GOVERNMENT TRUST
a series of
JOHN HANCOCK BOND FUND
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s)
Edward J. Boudreau, Jr., Thomas H. Drohan and James B. Little, with
full power of substitution in each, to vote all the shares of
beneficial interest of John Hancock U.S. Government Trust ("U.S.
Government Trust"), a series of John Hancock Bond Fund (the "Trust"),
which the undersigned is (are) entitled to vote at the Special Meeting
of Shareholders (the "Meeting") of U.S. Government Trust to be held at
101 Huntington Avenue, Boston, Massachusetts, on September 8, 1995 at
9:00 a.m., Boston time, and at any adjournment of the Meeting. All
powers may be exercised by a majority of said proxy holders or
substitutes voting or acting, or, if only one votes and acts, then
by that one. Receipt of the Proxy Statement dated July 14, 1995 is
hereby acknowledged. If not revoked, this proxy shall be voted:
(1) To approve an Agreement and Plan of Reorganization between
the Trust, on behalf of U.S. Government Trust, and the Trust, on
behalf of John Hancock Adjustable U.S. Government Trust (as
proposed to be renamed, John Hancock Intermediate Maturity
Government Fund ("Intermediate Maturity Fund")), providing for
Intermediate Maturity Fund's acquisition of all U.S. Government
Trust's assets in exchange solely for assumption of U.S. Government
Trust's liabilities, and the issuance of Class A and Class B shares
of Intermediate Maturity Fund to U.S. Government Trust for
distribution to its Class A and Class B shareholders.
____ ____ ____
FOR :____: AGAINST :____: ABSTAIN :____:
(2) In the discretion of said proxy or proxies, to act upon
such other matters as may properly come before the Meeting or any
adjournment of the Meeting.
<PAGE> 130
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL (1) IF NO
SPECIFICATION IS MADE ABOVE. AS TO ANY OTHER MATTER, SAID PROXY OR
PROXIES SHALL VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT.
Date , 1995
------------------ --------------------------------
Signature(s)
--------------------------------
NOTE: Signature(s) should agree with
name(s) printed herein. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full title as such. If a corporation,
please sign in full corporate name by
president or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
<PAGE> 131
PART B
STATEMENT OF ADDITIONAL INFORMATION
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
(FORMERLY, JOHN HANCOCK ADJUSTABLE U.S. GOVERNMENT TRUST)
A SERIES OF
JOHN HANCOCK BOND FUND
July 14, 1995
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the related Proxy Statement and Prospectus (also
dated July 14, 1995) which covers Class A and Class B shares of John Hancock
Intermediate Maturity Government Fund ("Intermediate Maturity Fund")
(formerly, John Hancock Adjustable U.S. Government Trust ("Adjustable
Government Trust")) to be issued in exchange for all of the net assets of John
Hancock U.S. Government Trust ("U.S. Government Trust"). Please retain this
Statement of Additional Information for future reference.
A copy of the Proxy Statement and Prospectus can be obtained free of charge by
calling Shareholder Services at 1-800-225-5291 or by written request to the
John Hancock Bond Fund at 101 Huntington Avenue, Boston, Massachusetts 02199.
TABLE OF CONTENTS
Page
Introduction..................................................
Additional Information about U.S. Government Trust............
General Information and History
Investment Objective and Policies
Management of U.S. Government Trust
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Shares of Beneficial Interest
Purchase, Redemption and Pricing of
U.S. Government Trust Shares
Underwriters
Calculation of Performance Data
Financial Statements
Additional Information About Intermediate Maturity Fund.......
General Information and History
Investment Objective and Policies
Management of Intermediate Maturity Fund
Control Persons and Principal Holders of Shares
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
<PAGE> 132
Shares of Beneficial Interest
Purchase, Redemption and Pricing of Intermediate Maturity Fund Shares
Underwriters
Calculation of Performance Data
Financial Statements
EXHIBITS
A - Preliminary Statement of Additional Information, dated , 1995 and
subject to completion, of John Hancock Intermediate Maturity Government
Fund (formerly, Adjustable Government Trust) (audited financial statements
of March 31, 1995 incorporated by reference to financial statements in
the Annual Report to Shareholders, dated May 31, 1995, and filed
herewith).
B - Statement of Additional Information, dated May 1, 1995 of U.S. Government
Trust.
C - Pro Forma Combined Financial Statements at March 31, 1995 and for the
period then ended of Adjustable Government Trust and U.S. Government
Trust.
-2-
<PAGE> 133
INTRODUCTION
------------
This Statement of Additional Information is intended to supplement the
information provided in a Proxy Statement and Prospectus dated July 14, 1995
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus
has been sent to the shareholders of U.S. Government Trust in connection with
the solicitation by the management of John Hancock Bond Fund (the "Trust") of
proxies to be voted at the Special Meeting of Shareholders of U.S. Government
Trust to be held on September 8, 1995. This Statement of Additional
Information incorporates by reference the statement of additional information
of U.S. Government Trust, dated May 15, 1995 (the "U.S. Government Trust
SAI"), and the preliminary statement of additional information of Intermediate
Maturity Fund (formerly Adjustable Government Trust), dated , 1995 and
subject to completion (the "Intermediate Maturity Fund SAI"). The U.S.
Government Trust SAI and the Intermediate Maturity Fund SAI are included with
this Statement of Additional Information.
ADDITIONAL INFORMATION ABOUT U.S. GOVERNMENT TRUST
--------------------------------------------------
General Information and History
- -------------------------------
For additional information about U.S. Government Trust generally and
its history, see "Organization of the Fund" in the U.S. Government Trust SAI.
Investment Objectives and Policies
- ----------------------------------
For additional information about U.S. Government Trust's investment
objectives and policies, see "Investment Objective and Policies" and
"Investment Restrictions" in the U.S. Government Trust SAI.
Management of U.S. Government Trust
- -----------------------------------
For additional information about the Trust's Board of Trustees,
officers and management personnel, see "Those Responsible for Management" in
the U.S. Government Trust SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about U.S. Government Trust's investment
adviser, custodian, transfer agent and independent accountants, see
"Investment Advisory and Other Services," "Distribution Contract," "Transfer
Agent Services," "Custody of Portfolio" and "Independent Auditors" in the
Intermediate Trust SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about U.S. Government Trust's brokerage
allocation practices, see "Brokerage Allocation" in the U.S. Government Trust
SAI.
-3-
<PAGE> 134
Shares of Beneficial Interest
- -----------------------------
For additional information about the voting rights and other
characteristics of U.S. Government Trust's shares of beneficial interest, see
"Description of the Fund's Shares" in the U.S. Government Trust SAI.
Purchase, Redemption and Pricing of U.S. Government Trust Shares
- ----------------------------------------------------------------
For additional information about the determination of net asset value,
see "Net Asset Value" in the U.S. Government Trust SAI.
Underwriters
- ------------
For additional information about U.S. Government Trust's principal
underwriter and the distribution contract between the principal underwriter
and U.S. Government Trust, see "Distribution Contract" in the U.S. Government
Trust SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of U.S.
Government Trust, see "Calculation of Performance" in the U.S. Government
Trust SAI.
Financial Statements
- --------------------
Audited financial statements of U.S. Government Trust at March 31, 1995
are attached to the U.S. Government Trust SAI.
ADDITIONAL INFORMATION ABOUT INTERMEDIATE MATURITY FUND
-------------------------------------------------------
General Information and History
- -------------------------------
For additional information about Intermediate Maturity Fund generally
and its history, see "Organization of the Fund" in the Intermediate Maturity
Fund SAI.
Investment Objective and Policies
- ---------------------------------
For additional information about Intermediate Maturity Fund's
investment objective, policies and restrictions see "Investment Objectives and
Policies" and "Investment Restrictions" in the Intermediate Maturity Fund SAI.
Management of Intermediate Maturity Fund
- ----------------------------------------
For additional information about the Trust's Board of Trustees,
officers and management personnel, see "Those Responsible for Management" in
the Intermediate Maturity Fund SAI.
-4-
<PAGE> 135
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of Intermediate
Maturity Fund and principal holders of shares of Intermediate Maturity Fund
see "Those Responsible for Management" in the Intermediate Maturity Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about Intermediate Maturity Fund's
investment adviser, custodian, transfer agent and independent accountants, see
"Investment Advisory and Other Services," "Distribution Contract," "Transfer
Agent Services," "Custody of Portfolio" and "Independent Auditors."
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about Intermediate Maturity Fund's brokerage
allocation practices, see "Brokerage Allocation" in the Intermediate Maturity
Fund SAI.
Shares of Beneficial Interest
- -----------------------------
For additional information about the voting rights and other
characteristics of shares of beneficial interest of Intermediate Maturity
Fund, see "Description of the Fund's Shares" in the Intermediate Maturity Fund
SAI.
Purchase, Redemption and Pricing of Intermediate Maturity Fund Shares
- ---------------------------------------------------------------------
For additional information about the determination of net asset value,
see "Net Asset Value" in the Intermediate Maturity Fund SAI.
Underwriters
- ------------
For additional information about Intermediate Maturity Fund's principal
underwriter and the distribution contract between the principal underwriter
and Intermediate Maturity Fund, see "Distribution Contract" in the
Intermediate Maturity Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of
Intermediate Maturity Fund, see "Calculation of Performance" in the
Intermediate Maturity Fund SAI.
Financial Statements
- --------------------
Audited financial statements of Adjustable Government Trust as at March
31, 1995 are attached to the Intermediate Maturity Fund SAI.
Pro Forma combined financial statements at March 31, 1995 for
Intermediate Maturity Fund as though the Reorganization had occurred on March
31, 1995 are attached hereto.
-5-
<PAGE> 136
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THE REGISTRATION STATEMENT BECOMES EFFECTIVE. NEITHER THE PROSPECTUS NOR
THIS STATEMENT OF ADDITIONAL INFORMATION SHALL CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE OR JURISDICTION.
<PAGE> 137
Exhibit A
SUBJECT TO COMPLETION DATED JULY __, 1995
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
September __, 1995
This Statement of Additional Information ("SAI") provides
information about the John Hancock Intermediate Maturity
Government Fund (the "Fund"), a diversified series of John Hancock
Bond Fund (the "Trust"), in addition to the information that is
contained in the Fund's Prospectus, dated September __, 1995.
This SAI is not a prospectus. It should be read in
conjunction with the Fund's Prospectus, a copy of which can be
obtained free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Statement of Cross-
Additional Referenced to
Information Prospectus
Page Page
------------ -------------
<S> <C> <C>
Organization of the Trust................ 1 10
Investment Objective and Policies........ 1 8
Certain Investment Practices............. 1 33
Investment Restrictions.................. 14 10
Those Responsible for Management......... 17 10
Investment Advisory and Other Services... 25 10
Distribution Contracts................... 29 14
Net Asset Value.......................... 32 19
Initial Sales Charge on Class A Shares... 32 11
Deferred Sales Charge on Class B Shares.. 34 11
Special Redemptions...................... 35 26
Additional Services and Programs......... 35 28
Description of the Fund's Shares......... 36 10
Tax Status............................... 39 15
Calculation of Performance............... 42 16
Brokerage Allocation..................... 44 17
Transfer Agent Services.................. 46 Back Cover
Custody of Portfolio .................... 47 Back Cover
Independent Auditors..................... 47 Back Cover
Appendix A............................... A-1 N/A
Financial Statements..................... F-1 N/A
</TABLE>
<PAGE> 138
ORGANIZATION OF THE TRUST
The Trust is an open-end management investment company
organized as a Massachusetts business trust under a Declaration of
Trust dated December 12, 1984. The Trust currently has only one
series, the Fund. Prior to , 1995, the Fund was called John
Hancock Adjustable U.S. Government Trust. Prior to December 22,
1994, the Fund was called Transamerica Adjustable U.S. Government
Trust.
The Fund is managed by John Hancock Advisers, Inc. (the
"Adviser"), a wholly-owned indirect subsidiary of John Hancock
Mutual Life Insurance Company (the "Life Company"), chartered in
1862 with national headquarters at John Hancock Place, Boston,
Massachusetts. John Hancock Funds, Inc. ("John Hancock Funds")
acts as principal distributor of the shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve a high level of
current income, consistent with preservation of capital and
maintenance of liquidity. The Fund seeks to achieve its
investment objective by investing primarily in U.S. Government
securities, including mortgage-backed securities issued or
guaranteed by U.S. Government agencies. The Fund may also invest
in obligations of the Tennessee Valley Authority, the World Bank,
asset-backed securities collateralized by U.S. Government
securities and medium-term debt obligations of governmental and
corporate issuers. Under normal market conditions, the Fund
intends to maintain a weighted average remaining maturity or
remaining average life of three and ten years. There is no
assurance that the Fund will achieve its investment objective.
CERTAIN INVESTMENT PRACTICES
MORTGAGE BACKED SECURITIES. The Fund may invest in mortgage
pass-through certificates and multiple-class pass-through
securities, such as real estate mortgage investment conduits
("REMIC") pass-through certificates, collateralized mortgage
obligations ("CMOs") and stripped mortgage-backed securities
("SMBS"), and other types of "Mortgage-Backed Securities" that may
be available in the future.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Guaranteed
mortgage pass-through securities represent participation interests
in pools of residential mortgage loans and are issued by U.S.
Governmental or private lenders and guaranteed by the U.S.
Government or one of its agencies or instrumentalities, including
but not limited to the Government National Mortgage Association
("Ginnie Mae"), the Federal National Mortgage Association ("Fannie
Mae") and the Federal Home Loan Mortgage Corporation ("Freddie
Mac"). Ginnie Mae certificates are guaranteed by the full faith
<PAGE> 139
and credit of the U.S. Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are
guaranteed by Fannie Mae, a federally chartered and privately
owned corporation, for full and timely payment of principal and
interest on the certificates. Freddie Mac certificates are
guaranteed by Freddie Mac, a corporate instrumentality of the U.S.
Government, for timely payment of interest and the ultimate
collection of all principal of the related mortgage loans.
MULTIPLE-CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED
MORTGAGE OBLIGATIONS. CMOs and REMIC pass-through or
participation certificates may be issued by, among others, U.S.
Government agencies and instrumentalities as well as private
lenders. CMOs and REMIC certificates are issued in multiple
classes and the principal of and interest on the mortgage assets
may be allocated among the several classes of CMOs or REMIC
certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully
retired no later than its final distribution date. Generally,
interest is paid or accrues on all classes of CMOs or REMIC
certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae
or Freddie Mac certificates but also may be collateralized by
other mortgage assets such as whole loans or private mortgage
pass-through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment
under the Internal Revenue Code of 1986, as amended (the "Code")
and invests in certain mortgages primarily secured by interests in
real property and other permitted investments.
STRIPPED MORTGAGE-BACKED SECURITIES. SMBS are derivative
multiple-class mortgage-backed securities. SMBS are usually
structured with two classes that receive different proportions of
interest and principal distributions on a pool of mortgage assets.
A typical SMBS will have one class receiving some of the interest
and most of the principal, while the other class will receive most
of the interest and the remaining principal. In the most extreme
case, one class will receive all of the interest (the "interest
only" class) while the other class will receive all of the
principal (the "principal only" class). The yields and market
risk of interest only and principal only SMBS, respectively, may
be more volatile than those of other fixed income securities. The
staff of the Securities and Exchange Commission ("SEC") considers
privately issued SMBS to be illiquid.
-2-
<PAGE> 140
RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES.
Investing in Mortgage-Backed Securities involves certain risks,
including the failure of a counter-party to meet its commitments,
adverse interest rate changes and the effects of prepayments on
mortgage cash flows. In addition, investing in the lowest tranche
of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the
yield characteristics of Mortgage-Backed Securities differ from
those of traditional fixed income securities. The major
differences typically include more frequent interest and principal
payments (usually monthly), the adjustablity of interest rates,
and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current
interest rates and a variety of economic, geographic, social and
other factors and cannot be predicted with certainty. Both
adjustable rate mortgage loans and fixed rate mortgage loans may
be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of
principal prepayments in an increasing interest rate environment.
Under certain interest rate and prepayment rate scenarios, the
Fund may fail to recoup fully its investment in Mortgage-Backed
Securities notwithstanding any direct or indirect governmental,
agency or other guarantee. When the Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it
may receive a rate of interest that is lower than the rate on
existing adjustable rate mortgage pass-through securities. Thus,
Mortgage-Backed Securities, and adjustable rate mortgage pass-
through securities in particular, may be less effective than other
types of U.S. Government securities as a means of "locking in"
interest rates.
Conversely, in a rising interest rate environment, a
declining prepayment rate will extend the average life of many
Mortgage-Backed Securities. This possibility is often referred to
as extension risk. Extending the average life of a Mortgage-
Backed Security increases the risk of depreciation due to future
increases in market interest rates.
RISK ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT
SECURITIES. Different types of derivative debt securities are
subject to different combinations of prepayment, extension and/or
interest rate risk. Conventional mortgage pass-through securities
and sequential pay CMOs are subject to all of these risks, but are
typically not leveraged. Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated
with interest only debt securities ("IOs"), super floaters, other
leveraged floating rate instruments and Mortgage-Backed Securities
purchased at a premium to their par value. In some instances,
-3-
<PAGE> 141
early prepayments may result in a complete loss of investment in
certain of these securities. The primary risks associated with
certain other derivative debt securities are the potential
extension of average life and/or depreciation due to rising
interest rates.
These securities include floating rate securities based on
the Cost of Funds Index ("COFI floaters"), other "lagging rate"
floating rate securities, floating rate securities that are
subject to a maximum interest rate ("capped floaters"), Mortgage-
Backed Securities purchased at a discount, leveraged inverse
floating rate securities ("inverse floaters"), principal only debt
securities ("POs"), certain residual or support tranches of CMOs
and index amortizing notes. Index amortizing notes are not
Mortgage-Backed Securities, but are subject to extension risk
resulting from the issuer's failure to exercise its option to call
or redeem the notes before their stated maturity date. Leveraged
inverse IOs combine several elements of the Mortgage-Backed
Securities described above and thus present an especially intense
combination of prepayment, extension and interest rate risks.
Planned amortization class ("PAC") and target amortization
class ("TAC") CMO bonds involve less exposure to prepayment,
extension and interest rate risk than other Mortgage-Backed
Securities, provided that prepayment rates remain within expected
prepayment ranges or "collars." To the extent that prepayment
rates remain within these prepayment ranges, the residual or
support tranches of PAC and TAC CMOs assume the extra prepayment,
extension and interest rate risk associated with the underlying
mortgage assets.
Other types of floating rate derivative debt securities
present more complex types of interest rate risks. For example,
range floaters are subject to the risk that the coupon will be
reduced to below market rates if a designated interest rate floats
outside of a specified interest rate band or collar. Dual index
or yield curve floaters are subject to depreciation in the event
of an unfavorable change in the spread between two designated
interest rates. X-reset floaters have a coupon that remains fixed
for more than one accrual period. Thus, the type of risk involved
in these securities depends on the terms of each individual
X-reset floater.
ASSET-BACKED SECURITIES. The Fund may invest in asset-backed
securities. Such securities are often subject to more rapid
repayment than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the
underlying loans. During periods of declining interest rates,
prepayment of loans underlying asset-backed securities can be
expected to accelerate. Accordingly, the Fund's ability to
maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting
-4-
<PAGE> 142
from prepayments, and its ability to reinvest the returns of
principal at comparable yields is subject to generally prevailing
interest rates at that time.
Credit card receivables are generally unsecured and the
debtors on such receivables are entitled to the protection of a
number of state and federal consumer credit laws, many of which
give such debtors the right to set-off certain amounts owed on the
credit cards, thereby reducing the balance due. Automobile
receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an
interest superior to that of the holders of the asset-backed
securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under
state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in the
underlying automobiles. Therefore, there is the possibility that,
in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate
additional income, the Fund may, from time to time, lend
securities from its portfolio to brokers, dealers and financial
institutions such as banks and trust companies. Such loans will
be secured by collateral consisting of cash or U.S. Government
securities which will be maintained in an amount equal to at least
100% of the current market value of the loaned securities. During
the period of each loan the Fund will receive the income on both
the loaned securities and the collateral and thereby increase its
return. Cash collateral will be invested in short-term high
quality debt securities, which will increase the current income of
the Fund. The loans will be terminable by the Fund at any time
and by the borrower on one day's notice. The Fund will have the
right to regain record ownership of loaned securities to exercise
beneficial rights such as rights to interest or other
distributions or voting rights on important issues. The Fund may
pay reasonable fees to persons unaffiliated with the Fund for
services in arranging such loans. Lending of portfolio securities
involves a risk of failure by the borrower to return the loaned
securities, in which event the Fund may incur a loss.
SECURITIES TRANSACTIONS SUBJECT TO DELAYED SETTLEMENT. As
described under "Investments, Techniques and Risk Factors" in the
Prospectus, securities purchased for which the normal settlement
date occurs later than the settlement date which is normal for
U.S. Treasury obligations and the securities held in the Fund are
subject to changes in value (both experiencing appreciation when
interest rates decline and depreciation when interest rates rise)
based upon the public's perception of the creditworthiness of the
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issuer and changes, real or anticipated, in the level of interest
rates. Purchasing securities subject to delayed settlement can
involve a risk that the yields available in the market when the
delivery takes place may actually be higher than those obtained in
the transaction itself. A separate account of the Fund consisting
of cash or liquid debt securities equal to the amount of the
delayed settlement commitments will be established at the Trust's
custodian bank. For the purpose of determining the adequacy of
the securities in the account, the deposited securities will be
valued at market value using the valuation procedures for all
other investments. If the market or fair value of such securities
declines, additional cash or highly liquid securities will be
placed in the account daily so that the value of the account will
equal the amount of such commitments by the Fund. On the
settlement date of these delayed settlement securities, the Fund
will meet its obligations from then available cash flow, sale of
securities held in the separate account, sale of other securities
or, although it would not normally expect to do so, from sale of
the delayed settlement securities themselves (which may have a
value greater or lesser than the Fund's payment obligations).
Sale of securities to meet such obligations will generally result
in the realization of capital gains or losses.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may
purchase securities on a when-issued or forward commitment basis.
"When-issued" refers to securities whose terms are available and
for which a market exists, but which have not been issued. The
Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is
considered to be an advantageous price and yield at the time of
the transaction. For when-issued transactions, no payment is made
until delivery is due, often a month or more after the purchase.
In a forward commitment transaction, the Fund contracts to
purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued
transactions, it relies on the seller to consummate the
transaction. The failure of the issuer or seller to consummate
the transaction may result in the Fund losing the opportunity to
obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued and forward commitment
basis also involves a risk of loss if the value of the security to
be purchased declines prior to the settlement date.
On the date the Fund enters into an agreement to purchase
securities on a when-issued or forward commitment basis, the Fund
will segregate in a separate account cash or liquid, high grade
debt securities equal in value to the Fund's commitment. These
assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent
that the total value of the assets in the account declines below
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the amount of the when-issued commitments. Alternatively, the
Fund may enter into offsetting contracts for the forward sale of
other securities that it owns.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase
agreements. A repurchase agreement is a contract under which the
Fund would acquire a security for a relatively short period
(generally not more than 7 days) subject to the obligation of the
seller to repurchase and the Fund to resell such security at a
fixed time and price (representing the Fund's cost plus interest).
The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with securities dealers.
The Adviser will continuously monitor the creditworthiness of the
parties with whom the Fund enters into repurchase agreements. The
Fund has established a procedure providing that the securities
serving as collateral for each repurchase agreement must be
delivered to the Fund's custodian either physically or in book-
entry form and that the collateral must be marked to market daily
to ensure that each repurchase agreement is fully collateralized
at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays
in liquidating the underlying securities and could experience
losses, including the possible decline in the value of the
underlying securities during the period in which the Fund seeks to
enforce its rights thereto, possible subnormal levels of income
and lack of access to income during this period, and the expense
of enforcing its rights.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into
reverse repurchase agreements which involve the sale of securities
held in its portfolio to a bank or securities firm with an
agreement that the Fund will buy back the securities at a fixed
future date at a fixed price plus an agreed amount of interest
which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund.
The Fund will use proceeds obtained from the sale of securities
pursuant to reverse repurchase agreements to purchase other
investments. The use of borrowed funds to make investments is a
practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique
that is intended to increase income. Thus, the Fund will enter
into a reverse repurchase agreement only when the Adviser
determines that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of
the transaction. However there is a risk that interest expense
will nevertheless exceed the income earned. Reverse repurchase
agreements involve the risk that the market value of securities
purchased by the Fund with proceeds of the transaction may decline
below the repurchase price of the securities sold by the Fund
which it is obligated to repurchase. The Fund would also continue
to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire
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those securities upon effecting their repurchase. To minimize
various risks associated with reverse repurchase agreements, the
Fund would establish and maintain with the Fund's custodian a
separate account consisting of highly liquid, marketable
securities in an amount at least equal to the repurchase prices of
the securities (plus any accrued interest thereon) under such
agreements. In addition, the Fund would not enter into reverse
repurchase agreements exceeding in the aggregate 33 1/3% of the
value of its total net assets (including for this purpose other
borrowings of the Fund). The Fund will enter into reverse
repurchase agreements only with selected registered broker/dealers
or with federally insured banks or savings and loan associations
which are approved in advance as being creditworthy by the
Trustees. Under procedures established by the Trustees, the
Adviser will monitor the creditworthiness of the firms involved.
FINANCIAL FUTURES CONTRACTS. The Fund may buy and sell
futures contracts (and related options) on securities in which it
may invest, interest rate indices, and other instruments. The
Fund may hedge its portfolio by selling or purchasing financial
futures contracts as an offset against the effects of changes in
interest rates or in security values. Although other techniques
could be used to reduce exposure to interest rate fluctuations,
the Fund may be able to hedge its exposure more effectively and
perhaps at a lower cost by using financial futures contracts. The
Fund may enter into financial futures contracts for hedging and
speculative purposes to the extent permitted by regulations of the
Commodity Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of
trade which have been designated "contract markets" by the CFTC.
Futures contracts are traded on these markets in a manner that is
similar to the way a stock is traded on a stock exchange. The
boards of trade, through their clearing corporations, guarantee
that the contracts will be performed. Currently, financial
futures contracts are based on interest rate instruments such as
long-term U.S. Treasury bonds, U.S. Treasury notes, Government
National Mortgage Association ("GNMA") modified pass-through
mortgage-backed securities, three-month U.S. Treasury bills, 90-
day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial
futures contracts are developed and traded the Fund may engage in
transactions in such contracts.
Although some financial futures contracts by their terms call
for actual delivery or acceptance of financial instruments, in
most cases the contracts are closed out prior to delivery by
offsetting purchases or sales of matching financial futures
contracts (same exchange, underlying security and delivery month).
Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If
the offsetting purchase price is less than a Fund's original sale
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price, the Fund realizes a gain, or if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale price is more
than the Fund's original purchase price, the Fund realizes a gain,
or if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. Each Fund will pay a
commission in connection with each purchase or sale of financial
futures contracts, including a closing transaction. For a
discussion of the Federal income tax considerations of trading in
financial futures contracts, see the information under the caption
"Tax Status" below.
At the time the Fund enters into a financial futures
contract, it is required to deposit with its custodian a specified
amount of cash or U.S. Government securities, known as "initial
margin," ranging upward from 1.1% of the value of the financial
futures contract being traded. The margin required for a
financial futures contract is set by the board of trade or
exchange on which the contract is traded and may be modified
during the term of the contract. The initial margin is in the
nature of a performance bond or good faith deposit on the
financial futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations
have been satisfied. The Fund expects to earn interest income on
their initial margin deposits. Each day, the futures contract is
valued at the official settlement price of the board of trade or
exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily
basis as the market price of the financial futures contract
fluctuates. This process is known as "mark to market." Variation
margin does not represent a borrowing or lending by the Fund but
is instead settlement between the Fund and the broker of the
amount one would owe the other if the financial futures contract
expired. In computing net asset value, the Fund will mark to
market its open financial future positions.
Successful hedging depends on a strong correlation between
the market for the underlying securities and the futures contract
market for those securities. There are several factors that will
probably prevent this correlation from being a perfect one, and
even a correct forecast of general interest rate trends may not
result in a successful hedging transaction. There are significant
differences between the securities and futures markets which could
create an imperfect correlation between the markets and which
could affect the success of a given hedge. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for financial futures and
debt securities, including technical influences in futures trading
and differences between the financial instruments being hedged and
the instruments underlying the standard financial futures
contracts available for trading in such respects as interest rate
levels, maturities and creditworthiness of issuers. The degree of
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imperfection may be increased where the underlying debt securities
are lower-rated and, thus, subject to greater fluctuation in price
than higher-rated securities.
A decision as to whether, when and how to hedge involves the
exercise of skill and judgment, and even a well-conceived hedge
may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends. The Fund will bear the risk that
the price of the securities being hedged will not move in complete
correlation with the price of the futures contracts used as a
hedging instrument. Although the Adviser believes that the use of
financial futures contracts will benefit the Fund, an incorrect
prediction could result in a loss on both the hedged securities in
the Fund's portfolio and the hedging vehicle so that the Fund's
return might have been better had hedging not been attempted.
However, in the absence of the ability to hedge, the Adviser
might have taken portfolio actions in anticipation of the same
market movements with similar investment results but, presumably,
at greater transaction costs. The low margin deposits required
for futures transactions permit an extremely high degree of
leverage. A relatively small movement in a futures contract may
result in losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount the
price of a futures contract may vary either up or down from the
previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that
day at a price beyond that limit. The daily limit governs only
price movements during a particular trading day and, therefore,
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses.
Finally, although the Fund engages in financial futures
transactions only on boards of trade or exchanges where there
appears to be an adequate secondary market, there is no assurance
that a liquid market will exist for a particular futures contract
at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking
delivery. In the event participants decide to make or take
delivery, liquidity in the market could be reduced. In addition,
the Fund could be prevented from executing a buy or sell order at
a specified price or closing out a position due to limits on open
positions or daily price fluctuation limits imposed by the
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exchanges or boards of trade. If the Fund cannot close out a
position, it will be required to continue to meet margin
requirements until the position is closed.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may buy and
sell options on financial futures contracts on securities in which
it may invest, interest rate indices, and other instruments. An
option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the
period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price.
The Fund would be required to deposit with its custodian initial
and variation margin with respect to put and call options on
futures contracts written by it. Options on futures contracts
involve risks similar to the risks relating to transactions in
financial futures contracts. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the
premium it paid for the option.
OTHER CONSIDERATIONS. The Fund will engage in futures and
options transactions for bona fide hedging or speculative purposes
to the extent permitted by CFTC regulations. The Fund will
determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially
related to price fluctuations in securities held by the Fund or
which it expects to purchase. Except as stated below, the Fund's
futures transactions will be entered into for traditional hedging
purposes -- i.e., futures contracts will be sold to protect
against a decline in the price of securities that the Fund owns,
or futures contracts will be purchased to protect the Fund against
an increase in the price of securities, or the currency in which
they are denominated, the Fund intends to purchase. As evidence
of this hedging intent, the Fund expects that on 75% or more of
the occasions on which they take a long futures or option position
(involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing equivalent
amounts of related securities at the time when the futures
contract or option position is closed out. However, in particular
cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire
without the corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide
hedging definition, a CFTC regulation permits the Fund to elect to
comply with a different test, under which the aggregate initial
margin and premiums required to establish speculative positions in
futures contracts and options on futures will not exceed 5% of the
net asset value of the Fund's portfolio, after taking into account
unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of
purchase. The Fund will engage in transactions in futures
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contracts only to the extent such transactions are consistent with
the requirements of the Code for maintaining their qualifications
as regulated investment companies for Federal income tax purposes.
When the Fund purchases financial futures contracts, or write
put options or purchase call options thereon, cash or liquid, high
grade debt securities will be deposited in a segregated account
with the Fund's custodian in an amount that, together with the
amount of initial and variation margin held in the account of its
broker, equals the market value of the futures contracts.
OPTIONS TRANSACTIONS. The Fund may write listed and over-
the-counter covered call options and covered put options on
securities in order to earn additional income from the premiums
received. In addition, this Fund may purchase listed and over-
the-counter call and put options. The extent to which covered
options will be used by the Fund will depend upon market
conditions and the availability of alternative strategies. The
Fund may write listed and over-the-counter call and put options on
up to 100% of its respective net assets.
The Fund will write listed and over-the-counter call options
only if they are "covered," which means that the Fund owns or has
the immediate right to acquire the securities underlying the
options without additional cash consideration upon conversion or
exchange of other securities held in its portfolio. A call option
written by the Fund may also be "covered" if the Fund holds on a
share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or
less than the exercise price of the call written if the difference
is maintained by the Fund in cash, U.S. Treasury bills or high
grade liquid debt obligations in a segregated account with the
Fund's custodian, and (ii) the covering call expires at the same
time as the call written. If a covered call option is not
exercised, the Fund would keep both the option premium and the
underlying security. If the covered call option written by the
Fund is exercised and the exercise price, less the transaction
costs, exceeds the cost of the underlying security, the Fund would
realize a gain in addition to the amount of the option premium it
received. If the exercise price, less transaction costs, is less
than the cost of the underlying security, the Fund's loss would be
reduced by the amount of the option premium.
As the writer of a covered put option, the Fund will write a
put option only with respect to securities it intends to acquire
for its portfolio and will maintain in a segregated account with
its custodian bank cash, U.S. Government securities or high-grade
liquid debt securities with a value equal to the price at which
the underlying security may be sold to the Fund in the event the
put option is exercised by the purchaser. The Fund may also write
a "covered" put option by purchasing on a share-for-share basis a
put on the same security as the put written by the Fund if the
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exercise price of the covering put held is equal to or greater
than the exercise price of the put written and the covering put
expires at the same time or later than the put written.
When writing listed and over-the-counter covered put options
on securities, the Fund would earn income from the premiums
received. If a covered put option is not exercised, the Fund
would keep the option premium and the assets maintained to cover
the option. If the option is exercised and the exercise price,
including transaction costs, exceeds the market price of the
underlying security, the Fund would realize a loss, but the amount
of the loss would be reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to
terminate its obligation prior to its exercise, it may effect a
"closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The
effect of the purchase is that the Fund's position will be offset
by the Options Clearing Corporation. The Fund may not effect a
closing purchase transaction after they have been notified of the
exercise of an option. There is no guarantee that a closing
purchase transaction can be effected. Although the Fund will
generally write only those options for which there appears to be
an active secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist for
any particular option or at any particular time, and for some
options no secondary market on an exchange may exist.
In the case of a written call option, effecting a closing
transaction will permit the Fund to write another call option on
the underlying security with either a different exercise price,
expiration date or both. In the case of a written put option, it
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will
permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments.
If the Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will effect a
closing transaction prior to or concurrent with the sale of the
security.
The Fund will realize a gain from a closing transaction if
the cost of the closing transaction is less than the premium
received from writing the option. The Fund will realize a loss
from a closing transaction if the cost of the closing transaction
is more than the premium received for writing the option.
However, because increases in the market price of a call option
will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
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OVER-THE-COUNTER OPTIONS. The Fund may engage in options
transactions on exchanges and in the over-the-counter markets. In
general, exchange-traded options are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an
exchange or clearing corporation) with standardized strike prices
and expiration dates. Over-the-counter ("OTC") transactions are
two-party contracts with price and terms negotiated by the buyer
and seller. The Fund will acquire only those OTC options for
which management believes the Fund can receive on each business
day at least two separate bids or offers (one of which will be
from an entity other than a party to the option) or those OTC
options valued by an independent pricing service. The Fund will
write and purchase OTC options only with member banks of the
Federal Reserve System and primary dealers in U.S. Government
securities or their affiliates which have capital of at least $50
million or whose obligations are guaranteed by an entity having
capital of at least $50 million. The SEC has taken the position
that OTC options are illiquid securities subject to the
restriction that illiquid securities are limited to not more than
15% of the Fund's net assets. The SEC, however, has a partial
exemption from the above restrictions on transactions in OTC
options. The SEC allows the Fund to exclude from the 15%
limitation on illiquid securities a portion of the value of the
OTC options written by the Fund, provided that certain conditions
are met. First, the other party to the OTC options has to be a
primary U.S. Government securities dealer designated as such by
the Federal Reserve Bank. Second, the Fund must have an absolute
contractual right to repurchase the OTC options at a formula
price. If the above conditions are met, the Fund may treat as
illiquid only that portion of the OTC option's value (and the
value of its underlying securities) which is equal to the formula
price for repurchasing the OTC option, less the OTC option's
intrinsic value.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment
restrictions. These restrictions may not be changed without
approval by holders of a "majority of the outstanding shares" of
the Fund. A majority for this purpose means the holders of:
(a) more than 50% of the outstanding shares, or (b) 67% or more of
the shares represented at a meeting where more that 50% of the
outstanding shares are represented, whichever is less.
The Fund may not:
1. borrow money, except that as a temporary measure for
extraordinary or emergency purposes the Fund may borrow from
banks in aggregate amounts at any one time outstanding not
exceeding 33 1/3% of the total assets (including the amount
borrowed) of the Fund valued at market; and the Fund may not
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purchase any securities at any time when borrowings exceed 5%
of the total assets of the Fund (taken at market value).
This borrowing restriction does not prohibit the use of
reverse repurchase agreements (see "Reverse Repurchase
Agreements"). For purposes of this investment restriction,
forward commitment transactions shall not constitute
borrowings. Interest paid on any borrowings will reduce the
Fund's net investment income;
2. make short sales of securities or purchase any security on
margin, except that the Fund may obtain such short-term
credit as may be necessary for the clearance of purchases and
sales of securities (this restriction does not apply to
securities purchased on a when-issued basis);
3. underwrite securities issued by other persons, except insofar
as the Fund may technically be deemed an underwriter under
the Securities Act of 1933 in selling a security, and except
that the Fund may invest all or substantially all of its
assets in another registered investment company having
substantially the same investment objectives as the Fund;
4. make loans to other persons except (a) through the lending of
securities held by the Fund, (b) through the purchase of debt
securities in accordance with the investment policies of the
Fund (the entry into repurchase agreements is not considered
a loan for purposes of this restriction);
5. with respect to 75% of its total assets, purchase the
securities of any one issuer (except securities issued or
guaranteed by the U.S. Government and its agencies or
instrumentalities, as to which there are no percentage limits
or restrictions) if immediately after and as a result of such
purchase (a) more than 5% of the value of its assets would be
invested in that issuer, or (b) the Fund would hold more than
10% of the outstanding voting securities of that issuer,
except that the Fund may invest all or substantially all of
its assets in another registered investment company having
substantially the same investment objectives as the Fund;
6. purchase or sell real estate (including limited partnership
interests) other than securities secured by real estate or
interests therein including mortgage-related securities or
interests in oil, gas or mineral leases in the ordinary
course of business (the Fund reserves the freedom of action
to hold and to sell real estate acquired as a result of the
ownership of securities);
7. invest more than 25% of its total assets in the securities of
issuers whose principal business activities are in the same
industry (excluding obligations of the U.S. Government, its
agencies and instrumentalities and repurchase agreements)
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except that the Fund may invest all or substantially all of
its assets in another registered investment company having
substantially the same objectives as the Fund;
8. issue any senior security (as that term is defined in the
Investment Company Act of 1940 (the "1940 Act")) if such
issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder; or
9. invest in securities of any company if, to the knowledge of
the Trust, any officer or director of the Trust or its
Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and all such officers and
directors own in the aggregate more than 5% of the
outstanding securities of such company.
The Fund has also adopted the following additional operating
restrictions that may be required by various state laws and
administrative positions. These operating restrictions are not
fundamental policies and may be changed by the Fund without
approval of its shareholders.
Under those operating restrictions, the Fund may not:
(a) invest in companies for the purpose of exercising control or
management, except that the Fund may invest all or
substantially all of its assets in another registered
investment company having substantially the same investment
restrictions as the Fund;
(b) make investments in the securities of other investment
companies, except that the Fund may invest all or
substantially all of its assets in another registered
investment company having substantially the same investment
restrictions as the Fund and except as otherwise permitted by
the 1940 Act or in connection with a merger, consolidation,
or reorganization;
(c) invest in securities of issuers (other than U.S. Government
Securities) having a record of less than three years of
continuous operation (for this purpose, the period of
operation of any issuer shall include the period of operation
of any predecessor or unconditional guarantor of such issuer)
if, regarding all securities, more than 5% of the total
assets (taken at market value at the time of each investment)
of the Fund would be invested in such securities, except that
the Fund may invest all or substantially all of its assets in
another registered investment company having substantially
the same investment restrictions as the Fund;
(d) invest in commodities and commodity futures contracts, put or
call options or any combination thereof;
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(e) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned by the Fund
except as may be necessary in connection with borrowings
mentioned in investment restriction no. 1 above; or
(f) purchase warrants of any issuer, except on a limited basis,
if, as a result, more than 2% of the value of its total
assets would be invested in warrants which are not listed on
the New York Stock Exchange and more than 5% of the value of
its total assets would be invested in warrants, whether or
not so listed, such warrants in each case to be valued at the
lesser of cost or market, but assigning no value in each case
to warrants acquired by the Fund in units or attached to debt
securities; or
(g) purchase any security, including any repurchase agreement
maturing in more than seven days, which is not readily
marketable, if more than 15% of the net assets of the Fund,
taken at market value, would be invested in such securities.
Pursuant to an undertaking with a certain state, the Fund
will not invest more than 15% of its respective net assets in
illiquid and restricted securities so long as shares of the Fund
are registered for sale in such state.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees who elect
officers who are responsible for the day-to-day operations of the
Fund and who execute policies formulated by the Trustees. Several
of the officers and Trustees of the Fund are also officers and
directors of the Adviser or officers and directors of John Hancock
Funds.
Set forth below is the principal occupation or employment of
the Trustees and officers of the Trust during the past five years.
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Trustee, Chairman and Chief
101 Huntington Avenue Chairman and Executive Officer
Boston, MA 02199 Chief Executive the Adviser
Officer(1)(2) Berkeley Financial
Group ("The Berkeley
Group"); Chairman, NM
Capital Management, Inc.
("NM Capital"); John
Hancock Advisers
International Limited
("Advisers
</TABLE>
-17-
<PAGE> 155
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
International"); John
Hancock Funds, Inc.; John
Hancock Investor Services
Corporation ("Investor
Services"); and Sovereign
Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser,
the Berkeley Group, NM
Capital, Advisers
International, John
Hancock Funds, Inc.,
Investor Services and
SAMCorp are collectively
referred to as the
"Affiliated Companies");
Chairman, First Signature
Bank & Trust; Director,
John Hancock Freedom
Securities Corporation,
John Hancock Capital
Corporation, New England/
Canada Business Council;
Member, Investment Company
Institute Board of
Governors; Trustee, Museum
of Science; President, the
Adviser (until July 1992);
Trustee or Director of
other investment companies
managed by the Adviser;
and Chairman, John Hancock
Distributors, Inc. (until
April, 1994).
James F. Carlin Trustee Chairman and CEO,
233 West Central Street Carlin Consolidated,
Natick, MA 01760 Inc. (insurance);
Director, Arbella Mutual
Insurance Company
(insurance), Consolidated
Group Trust (group health
plan), Carlin Insurance
Agency, Inc. and West
Insurance Agency, Inc.;
Receiver, the City of
Chelsea (until August
1992); and Trustee or
</TABLE>
-18-
<PAGE> 156
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
Director of other
investment companies
managed by the Adviser.
William H. Cunningham Trustee Chancellor,
601 Colorado Street University of Texas
O'Henry Hall System and former
Austin, TX 78701 President of the
University of Texas,
Austin, Texas; Regents
Chair in Higher Education
Leadership; James L.
Bayless Chair for Free
Enterprise; Professor of
Marketing and Dean College
of Business
Administration/Graduate
School of Business (1983-
1985); Centennial Chair in
Business Education
Leadership, 1983-1985;
Director, LaQuinta Motor
Inns, Inc. (hotel
management company);
Director, Jefferson- Pilot
Corporation (diversified
life insurance company);
Director, Freeport-
McMoran Inc. (oil and gas
company); Director, Barton
Creek Properties, Inc.
(1988-1990) (real estate
development) and LBJ
Foundation Board
(education foundation);
and Advisory Director,
Texas Commerce Bank -
Austin.
Charles L. Ladner Trustee(3) Director, Energy
UGI Corporation North, Inc.
460 North Gulph Road (public utility
King of Prussia, PA 19406 holding company); Senior
Vice President, Finance
UGI Corp. (public utility
holding company) (until
1992); and Trustee or
Director of other
investment companies
managed by the Adviser.
</TABLE>
-19-
<PAGE> 157
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
Leo E. Linbeck, Jr. Trustee Chairman, President,
3810 W. Alabama Chief
Houston, TX 77027 Executive Officer and
Director, Linbeck
Corporation (a holding
company engaged in various
phases of the construction
industry and warehousing
interests); Director and
Chairman, Federal Reserve
Bank of Dallas; Chairman
of the Board and Chief
Executive Officer, Linbeck
Construction Corporation;
Director, Panhandle
Eastern Corporation (a
diversified energy
company); Director, Daniel
Industries, Inc.
(manufacturer of gas
measuring products and
energy related equipment);
Director, GeoQuest
International, Inc. (a
geophysical consulting
firm); and Director,
Greater Houston
Partnership.
Patricia P. McCarter Trustee(3) Director and Secretary,
Swedesford Road the McCarter Corp.
RD #3, Box 121 (machine manufacturer);
Malvern, PA 19355 and Trustee or Director
of other investment
companies managed by the
Adviser.
Steven R. Pruchansky Trustee(1)(3) Director and Treasurer,
360 Horse Creek Drive, #208 Mast Holdings, Inc.;
Naples, FL 33942 Director, First Signature
Bank & Trust Company
(until August 1991);
General Partner, Mast
Realty Trust; President,
Maxwell Building Corp.
</TABLE>
-20-
<PAGE> 158
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
(until 1991); and Trustee
or Director of other
investment companies
managed by the Adviser.
Norman H. Smith Trustee(3) Lieutenant General,
Rt. 1, Box 249 E USMC, Deputy Chief
Linden, VA 22642 of Staff for Manpower
and Reserve Affairs,
Headquarters Marine Corps;
Commanding General III
Marine Expeditionary
Force/3rd Marine Division
(retired 1991); and
Trustee or Director of
other investment companies
managed by the Adviser.
John P. Toolan Trustee(3) Director, The Smith
13 Chadwell Place Barney Muni Bond
Morristown, NJ 07960 Funds, The
Smith Barney Tax-Free
Money Fund, Inc.,
Vantage Money Market Funds
(mutual funds), The
Inefficient-Market Fund,
Inc. (closed-end
investment company) and
Smith Barney Trust Company
of Florida; Chairman,
Smith Barney Trust Company
(retired December, 1991);
Director, Smith Barney,
Inc., Mutual Management
Company and Smith, Barney
Advisers, Inc. (investment
advisers) (retired 1991);
and Senior Executive Vice
President, Director and
member of the Executive
Committee, Smith Barney,
Harris Upham & Co.,
Incorporated (investment
bankers) (until 1991); and
Trustee or Director of
other investment companies
managed by the Adviser.
</TABLE>
-21-
<PAGE> 159
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
Robert G. Freedman* Vice Chairman President and Chief
101 Huntington Avenue and Chief Investment Officer,
Boston, MA 02199 Investment the Investment
Officer(2) Adviser.
Anne C. Hodsdon* President(2) Executive Vice
101 Huntington Avenue President,
Boston, MA 02199 the Adviser.
James B. Little* Senior Vice Senior Vice
101 Huntington Avenue President, President, the
Boston, MA 02199 Chief Financial Adviser.
Officer
Thomas H. Drohan* Senior Vice Senior Vice President
101 Huntington Avenue President and and Secretary, the
Boston, MA 02199 Secretary Adviser.
Michael P. DiCarlo* Senior Vice Senior Vice
101 Huntington Avenue President(2) President, the
Boston, MA 02199 Adviser.
Edgar Larsen* Senior Vice Senior Vice
101 Huntington Avenue President President, the
Boston, MA 02199 Adviser.
B.J. Willingham* Senior Vice Senior Vice
101 Huntington Avenue President President, the
Boston, MA 02199 Adviser. Formerly,
Director
and Chief Investment
Officer of Transamerica
Fund Management Company.
James J. Stokowski* Vice President Vice President, the
101 Huntington Avenue and Treasurer Adviser.
Boston, MA 02199
Susan S. Newton* Vice President Vice President and
101 Huntington Avenue and Compliance Assistant Secretary,
Boston, MA 02199 Officer the Adviser.
John A. Morin* Vice President Vice President, the
101 Huntington Avenue Adviser.
Boston, MA 02199
<FN>
- ---------------------
* An "interested person" of the Fund, as such term is defined
in the 1940 Act.
</TABLE>
-22-
<PAGE> 160
(1) Member of the Executive Committee. Under the Trust's
Declaration of Trust, the Executive Committee may generally
exercise most of the powers of the Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on
Administration.
(4) A Member of the Audit, Administration and Compensation
Committees.
All of the officers listed are officers or employees of the
Adviser or affiliated companies. Some of the Trustees and
officers may also be officers and/or directors and/or trustees of
one or more of the other funds for which the Adviser serves as
investment adviser.
As of June 15, 1995, there were shares of the Fund
outstanding and officers and trustees of the Fund as a group
beneficially owned less than 1% of these outstanding shares. [At
such date, Merrill Lynch Pierce Fenner & Smith, Inc.,
Jacksonville, Florida held of record shares representing
approximately [9%] of the shares outstanding of Fund.] At such
date, no other person owned of record or beneficially as much as
5% of the outstanding shares of the Fund.
As of December 22, 1994, the Trustees have established an
Advisory Board which acts to facilitate a smooth transition of
management over a two-year period (between Transamerica Fund
Management Company ("TFMC"), the prior investment adviser of the
Fund, and the Adviser). The members of the Advisory Board are
distinct from the Board of Trustees, do not serve the Fund in any
other capacity and are persons who have no power to determine what
securities are purchased or sold on behalf of the Fund. Each
member of the Advisory Board may be contacted at 101 Huntington
Avenue, Boston, Massachusetts 02199.
Members of the Advisory Board and their respective principal
occupations during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management
services); former Chairman of the Board, Mosher Steel
Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman
from Texas; co-founder, Houston Parents' League; former board
member of various civic and cultural organizations in
Houston, including the Houston Symphony, Museum of Fine Arts
and YWCA. Mrs. Bentsen is presently active in various civic
and cultural activities in the Washington, D.C. area,
including membership on the Area Board for The March of Dimes
and is a National Trustee for the Botanic Gardens of
Washington, D.C.
-23-
<PAGE> 161
Thomas R. Powers, Formerly Chairman of the Board, President and
Chief Executive Officer, TFMC; Director, West Central
Advisory Board, Texas Commerce Bank; Trustee, Memorial
Hospital System; Chairman of the Board of Regents of Baylor
University; Member, Board of Governors, National Association
of Securities Dealers, Inc.; Formerly, Chairman, Investment
Company Institute; formerly, President, Houston Chapter of
Financial Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company;
Director, Houston Industries and Houston Lighting and Power
Company; Director, TransAmerican Companies (natural gas
producer and transportation); Member, Board of Managers,
Harris County Hospital District; Advisory Director,
Commercial State Bank, El Campo; Advisory Director, First
National Bank of Bryan; Advisory Director, Sterling
Bancshares; Former Director and Vice Chairman, Texas Commerce
Bancshares; and Vice Chairman, Texas Commerce Bank.
COMPENSATION OF THE BOARD OF TRUSTEES AND ADVISORY BOARD.
The following table provides information regarding the
compensation paid by the Fund and the other investment companies
in the John Hancock Fund Complex to the Independent Trustees and
the Advisory Board members for their services. Mr. Boudreau, a
non-Independent Trustee, and each of the officers of the Fund are
interested persons of the Adviser, are compensated by the Adviser
and received no compensation from the Fund for their services.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Trustees from the Fund Fund's Expenses Trustees**
-------- ------------- ---------------- ------------------
<S> <C> <C> <C>
James F. Carlin $ $ $
William H. Cunningham
Charles L. Ladner
Leo E. Linbeck, Jr.
Patricia P. McCarter
Steven R. Pruchansky
Norman H. Smith
John P. Toolan
<FN>
* Compensation made pursuant to different compensation
arrangements then in effect for the fiscal year ended
March 31,1995.
** The total compensation paid by the John Hancock Fund Complex
to the Independent Trustees is $366,450 as of the calendar
year ended December 31, 1994. All Trustees/Directors except
</TABLE>
-24-
<PAGE> 162
Messrs. Cunningham and Linbeck are Trustees/Directors of [39]
funds in the John Hancock Fund Complex. Messrs. Cunningham
and Linbeck are Trustees/Directors of [21] funds. (The Fund
was not part of the John Hancock Fund Complex until
December 22, 1994 and Messrs. Cunningham and Linbeck were not
trustees or directors of any funds in the John Hancock Fund
Complex prior to December 22, 1994.)
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Fund Fund's Expenses Advisory Board***
-------------- ------------- ---------------- ------------------
<S> <C> <C> <C>
R. Trent Campbell $ $ $
Mrs. Lloyd Bentsen
Thomas R. Powers
Thomas B. McDade
TOTAL
<FN>
*** Estimated for the Fund's current fiscal year ending March 31, 1995.
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGEMENT CONTRACT. The Fund receives investment
advice from the Adviser. Investors should refer to the
Prospectus for a description of certain information concerning the
investment management contracts. Each of the Trustees and
principal officers affiliated with the Fund who is also an
affiliated person of the Adviser is named above, together with the
capacity in which such person is affiliated with the Fund, the
Adviser or TFMC (the Fund's prior investment adviser).
The Adviser, located at 101 Huntington Avenue, Boston,
Massachusetts 02199-7603, was organized in 1968 and has more than
$13 billion in assets under management in its capacity as
investment adviser to the Fund and the other mutual funds and
publicly traded investment companies in the John Hancock group of
funds having a combined total of over [1,060,000] shareholders.
The Adviser is a wholly-owned subsidiary of The Berkeley Financial
Group, which is in turn a wholly-owned subsidiary of John Hancock
Subsidiaries, Inc., which is in turn a wholly-owned subsidiary of
the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under
management of [$80 million], the Life Company is one of the ten
largest life insurance companies in the United States and carries
Standard & Poor's and A.M. Best's highest ratings. Founded in
1862, the Life Company has been serving clients for over 130
years.
-25-
<PAGE> 163
The Trust on behalf of the Fund has entered into an
investment management contract with the Adviser. Under the
investment management contract, the Adviser provides the Fund with
(i) a continuous investment program, consistent with the Fund's
stated investment objective and policies, (ii) supervision of all
aspects of the Fund's operations except those that are delegated
to a custodian, transfer agent or other agent and (iii) such
executive, administrative and clerical personnel, officers and
equipment as are necessary for the conduct of the Fund's business.
No person other than the Adviser and its directors and
employees regularly furnishes advice to the Fund with respect to
the desirability of the Fund investing in, purchasing or selling
securities. The Adviser may from time to time receive statistical
or other similar factual information, and information regarding
general economic factors and trends, from the Life Company and its
affiliates.
Under the terms of the investment management contract with
the Trust on behalf of the Fund, the Adviser provides the Fund
with office space, equipment and supplies and other facilities and
personnel required for the business of the Fund. The Adviser pays
the compensation of all officers and employees of the Trust and
pays the expenses of clerical services relating to the
administration of the Fund. All expenses which are not
specifically paid by the Adviser and which are incurred in the
operation of the Fund including, but not limited to, (i) the fees
of the Independent Trustees of the Trust, (ii) the fees of the
members of the Fund's Advisory Board (described above) and
(iii) the continuous public offering of the shares of the Fund are
borne by the Fund. Subject to the conditions set forth in a
private letter ruling that the Fund has received from the Internal
Revenue Service relating to its multiple-class structure, class
expenses properly allocable to any Class A or Class B shares will
be borne exclusively by such class of shares.
As provided by the investment management contract, the Fund
pays the Adviser an investment management fee, which is accrued
daily and paid monthly in arrears, equal on an annual basis to
0.40% of the Fund's average daily net asset value.
The Adviser may voluntarily and temporarily reduce its
advisory fee or make other arrangements to limit the Fund's
expenses to a specified percentage of average daily net assets.
The Adviser retains the right to re-impose the advisory fee and
recover any other payments to the extent that, at the end of any
fiscal year, the Fund's annual expenses fall below this limit.
In the event normal operating expenses of the Fund, exclusive
of certain expenses prescribed by state law, are in excess of any
state limit where the Fund is registered to sell shares of
beneficial interest, the fee payable to the Adviser will be
-26-
<PAGE> 164
reduced to the extent of such excess and the Adviser will make any
additional arrangements necessary to eliminate any remaining
excess expenses. Currently, the most restrictive limit applicable
to the Fund is 2.5% of the first $30,000,000 of the Fund's average
daily net asset value, 2% of the next $70,000,000 and 1.5% of the
remaining average daily net asset value.
Pursuant to the investment management contract, the Adviser
is not liable to the Fund or its shareholders for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the contract relates, except
a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its
duties or from its reckless disregard of the obligations and
duties under the applicable contract.
The initial term of the investment management contract
expires on ,1997 and the investment management contract will
continue in effect from year to year thereafter if approved
annually by a vote of a majority of the Independent Trustees of
the Trust cast in person at a meeting called for the purpose of
voting on such approval, and by either a majority of the Trustees
or the holders of a majority of the Fund's outstanding voting
securities. The management contract may, on 60 days' written
notice, be terminated at any time without the payment of any
penalty to the Fund by vote of a majority of the outstanding
voting securities of the Fund, by the Trustees or by the Adviser.
The management contract terminates automatically in the event of
its assignment.
Securities held by the Fund may also be held by other funds
or investment advisory clients for which the Adviser or its
affiliates provide investment advice. Because of different
investment objectives or other factors, a particular security may
be bought for one or more funds or clients when one or more are
selling the same security. If opportunities for purchase or sale
of securities by the Adviser or for other funds or clients for
which the Adviser renders investment advice arise for
consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective
funds or clients in a manner deemed equitable to all of them. To
the extent that transactions on behalf of more than one client of
the Adviser or its respective affiliates may increase the demand
for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.
Under the investment management contract, the Fund may use
the name "John Hancock" or any name derived from or similar to it
only for so long as the applicable investment management contract
or any extension, renewal or amendment thereof remains in effect.
If the Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease
-27-
<PAGE> 165
to use such name or any other name indicating that it is advised
by or otherwise connected with the Adviser. In addition, the
Adviser or the Life Company may grant the non-exclusive right to
use the name "John Hancock" or any similar name to any other
corporation or entity, including but not limited to any investment
company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the investment adviser.
For the fiscal years ended March 31, 1993, 1994, and 1995,
advisory fees payable by the Fund to TFMC, the Fund's former
investment adviser, amounted to $123,662, $184,072 and $21,511,
respectively. For the fiscal year ended March 31, 1995, advisory
fees payable by the Fund to the Adviser, amounted to $7,171.
However, a portion of the fees paid to TFMC and the Adviser were
not imposed pursuant to the voluntary fee and expense limitation
arrangements then in effect (see "The Fund's Expenses" in the
Fund's Prospectus).
ADMINISTRATIVE SERVICES AGREEMENT. The Fund was a party to
an administrative services agreement with TFMC (the "Services
Agreement"), pursuant to which TFMC performed bookkeeping and
accounting services and functions, including preparing and
maintaining various accounting books, records and other documents
and keeping such general ledgers and portfolio accounts as are
reasonably necessary for the operation of the Fund. Other
administrative services included communications in response to
shareholder inquiries and certain printing expenses of various
financial reports. In addition, such staff and office space,
facilities and equipment was provided as necessary to provide the
required administrative services. The Services Agreement was
amended in connection with the appointment of the Adviser as
administrator to the Fund to permit services under the Agreement
to be provided by the Adviser and its affiliates. The Services
Agreement was terminated during the fiscal year ended March 31,
1995.
For the fiscal years ended March 31, 1993, 1994 and 1995, the
Fund paid to TFMC (pursuant to the Services Agreement), $42,650,
$18,021 and $______, respectively, of which $40,524, $14,730 and
$______, respectively, was paid to TFMC and $2,126, $3,291 and
$______, respectively, were paid for certain data processing and
pricing information services.
For the fiscal years ended March 31, 1993, 1994 and 1995, the
Fund pursuant to a master/feeder arrangement invested all of its
assets in John Hancock Adjustable U.S. Government Fund (the
"Portfolio"). During these years, the Portfolio paid TFMC
(pursuant to the Services Agreement), $37,033, $38,012 and
$______, respectively, of which $26,189, $26,722 and $______,
respectively,
-28-
<PAGE> 166
was paid to TFMC and $10,844, $11,290 and $______, respectively,
were paid for certain data processing and pricing information
services.
DISTRIBUTION CONTRACTS
DISTRIBUTION CONTRACTS. The Fund's shares are sold on a
continuous basis at the public offering price. John Hancock
Funds, a wholly-owned subsidiary of the Adviser, has the exclusive
right, pursuant to Distribution Contracts dated December 22, 1994
(the "Distribution Contracts"), to purchase shares from the Fund
at net asset value for resale to the public or to broker-dealers
at the public offering price. Upon notice to all broker-dealers
("Selling Brokers") with whom it has sales agreements, John
Hancock Funds may allow such Selling Brokers up to the full
applicable sales charge during periods specified in such notice.
During these periods, such Selling Brokers may be deemed to be
underwriters as that term is defined in the Securities Act of
1933.
The Distribution Contract was initially adopted on behalf of
the Fund by the affirmative vote of the Trust's Trustees including
the vote of a majority of Independent Trustees cast in person at a
meeting called for such purpose. The Distribution Contract shall
continue in effect until December 22, 1995 and from year to year
thereafter if approved by either the vote of the Fund's
shareholders or the Trustees, including the vote of a majority of
Independent Trustees of any such party, cast in person at a
meeting called for such person. The Distribution Contract may be
terminated at any time, without penalty, by either party upon
sixty (60) days' written notice or by a vote of a majority of the
outstanding voting securities of the Fund and terminates
automatically in the case of an assignment by John Hancock Funds.
Total underwriting commissions for sales of the Fund's
Class A shares for the fiscal years ended March 31, 1993, 1994 and
1995 were $303,663, $59,793 and $24,555, respectively. For the
fiscal years ended March 31, 1993, 1994 and 1995, $37,148, $7,455
and $4,090, respectively, were retained by the Fund's former
and/or current distributor, as the case may be, and the remainder
was reallowed to dealers.
DISTRIBUTION PLAN. The Board of Trustees, including the
Independent Trustees of the Fund, approved new distribution plans
pursuant to Rule 12b-1 under the 1940 Act for Class A shares
("Class A Plan") and Class B shares ("Class B Plan"). Such Plans
were approved by a majority of the outstanding shares of each
respective class on December 16, 1994 and became effective on
December 22, 1994.
-29-
<PAGE> 167
Under the Class A Plans, the distribution or service fee will
not exceed an annual rate of 0.25% of the average daily net asset
value of the Class A shares of the Fund (determined in accordance
with the Fund's Prospectus as from time to time in effect). Any
expenses under the Fund's Class A Plan not reimbursed within 12
months of being presented to the Fund for repayment are forfeited
and not carried over to future years. Under the Fund's Class B
Plan, the distribution or service fee to be paid by the Fund will
not exceed an annual rate of 1.00% of the average daily net assets
of the Class B shares of the Fund (determined in accordance with
the Fund's prospectus as from time to time in effect); provided
that the portion of such fee used to cover Service Expenses
(described below) shall not exceed an annual rate of 0.25% of the
average daily net asset value of the Class B shares of the Fund.
John Hancock Funds has agreed to limit the payment of expenses
pursuant to the Fund's Class B Plan to 0.90% of the average daily
net assets of the Class B shares of the Fund. Under the Fund's
Class B Plan, the fee covers the Distribution and Service Expenses
(described below) and interest expenses on unreimbursed
distribution expenses. In accordance with generally accepted
accounting principles, the Fund does not treat unreimbursed
distribution expenses attributable to Class B shares as a
liability of the Fund and does not reduce the current net assets
of Class B by such amount although the amount may be payable in
the future.
Under the Plans, expenditures shall be calculated and accrued
daily and paid monthly or at such other intervals as the Trustees
shall determine. The fee may be spent by John Hancock Funds on
Distribution Expenses or Service Expenses. "Distribution
Expenses" include any activities or expenses primarily intended to
result in the sale of shares of the relevant class of the Fund,
including, but not limited to: (i) initial and ongoing sales
compensation payable out of such fee as such compensation is
received by John Hancock Funds or by Selling Brokers, (ii) direct
out-of-pocket expenses incurred in connection with the
distribution of shares, including expenses related to printing of
prospectuses and reports; (iii) preparation, printing and
distribution of sales literature and advertising material; (iv) an
allocation of overhead and other branch office expenses of John
Hancock Funds related to the distribution of Fund shares
(v) distribution expenses that were incurred by the Fund's former
distributor and not recovered through payments under the Class A
or Class B former plans or through receipt of contingent deferred
sales charges; and (vi) in the event that any other investment
company (the "Acquired Fund") sells all or substantially all of
its assets to, merges with or otherwise engages in a combination
with the Fund, distribution expenses originally incurred in
connection with the distribution of the Acquired Fund's shares.
Service Expenses under the Plans include payments made to, or on
account of, account executives of selected broker-dealers
-30-
<PAGE> 168
(including affiliates of John Hancock Funds) and others who
furnish personal and shareholder account maintenance services to
shareholders of the relevant class of the Fund.
For the fiscal year ended March 31, 1995, total payments made
by the Fund under the Class A Plan to the Fund's distributor
amounted to $44,214 all of which represented distribution fees of
which $ , $ , and $ represented payments for dealer
commissions, underwriting fees and carrying charges, respectively.
During the fiscal year ended March 31, 1995, total payments
made by the Fund under the Class B Plan to the Fund's distributor
amounted to $98,958 all of which represented distribution fees of
which $ , $ and $ represented payments for dealer
commissions, underwriting fees and carrying charges, respectively.
For the fiscal year ended March 31, 1995, the distributor
received $54,072 in contingent deferred sales charges from
redemption of the Fund's Class B shares.
The Plan provides that it will continue in effect only so
long as its continuance is approved at least annually by a
majority of both the Trustees and the Independent Trustees. The
Plan provides that it may be terminated (a) at any time by vote of
a majority of the Trustees, a majority of the Independent
Trustees, or a majority of the respective Class' outstanding
voting securities or (b) by John Hancock Funds on 60 days' notice
in writing to the Fund. The Plan further provides that it may
not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of
the outstanding shares of the class of the Fund which has voting
rights with respect to the Plan. The Plan provides that no
material amendment to the Plan will, in any event, be effective
unless it is approved by a majority vote of the Trustees and the
Independent Trustees of the Trust. The holders of Class A shares
and Class B shares have exclusive voting rights with respect to
the Plan applicable to their respective class of shares. By
adopting the Plans, the Board of Trustees has determined that, in
its judgment, there is a reasonable likelihood that the Plan will
benefit the holders of the applicable class of shares of the
Fund.
Information regarding the services rendered under the Plan
and the Distribution Contract and the amounts paid therefore by
the respective Class of the Fund are provided to, and reviewed by,
the Board of Trustees on a quarterly basis. In its quarterly
review, the Board of Trustees considers the continued
appropriateness of the Plan and the Distribution Contract and the
level of compensation provided therein.
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When the Trust seeks an Independent Trustee to fill a vacancy
or as a nominee for election by shareholders, the selection or
nomination of the Independent Trustee is, under resolutions
adopted by the Trustees contemporaneously with their adoption of
the Plan, committed to the discretion of the Committee on
Administration of the Trustees. The members of the Committee on
Administration are all Independent Trustees and identified in this
Statement of Additional Information under the heading "Those
Responsible for Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of
the Fund's shares, the following procedures are utilized wherever
applicable.
Debt investment securities are valued on the basis of
valuations furnished by a principal market maker or a pricing
service, both of which generally utilize electronic data
processing techniques to determine valuations for normal
institutional size trading units of debt securities without
exclusive reliance upon quoted prices.
Short-term debt investments which have a remaining maturity
of 60 days or less are generally valued at amortized cost, which
approximates market value. If market quotations are not readily
available or if in the opinion of the Adviser any quotation or
price is not representative of true market value, the fair value
of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
The Fund will not price its securities on the following
national holidays: New Year's Day; Presidents' Day; Good Friday;
Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and
Christmas Day. Consequently, the NAV of the Fund's redeemable
securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
INITIAL SALES CHARGE ON CLASS A SHARES. The sales charges
applicable to purchases of Class A shares of the Fund are
described in the Fund's Class A and Class B Prospectus. Methods
of obtaining reduced sales charges referred to generally in the
Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares,
the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A
shares of the Fund, or if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the
cost of the Class A shares owned.
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COMBINED PURCHASES. In calculating the sales charge
applicable to purchases of Class A shares made at one time, the
purchases will be combined if made by (a) an individual, his or
her spouse and their children under the age of 21 purchasing
securities for his or her own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary
account and (c) certain groups of four or more individuals making
use of salary deductions or similar group methods of payment whose
funds are combined for the purchase of mutual fund shares.
Further information about combined purchases, including certain
restrictions on combined group purchases, is available from
Investor Services or a Selling Broker's representative.
WITHOUT SALES CHARGE. As described in the Fund's Prospectus,
Class A shares of the Fund may be sold without a sales charge to
certain persons described in the Prospectus.
ACCUMULATION PRIVILEGE. Investors (including investors
combining purchases) who are already Class A shareholders may also
obtain the benefit of the reduced sales charge by taking into
account not only the amount then being invested but also the
purchase price or value of the Class A shares already held by such
person.
COMBINATION PRIVILEGE. Reduced sales charges (according to
the schedule set forth in each Class A and Class B Prospectus)
also are available to an investor based on the aggregate amount of
his concurrent and prior investments in Class A shares of the Fund
and shares of all other John Hancock funds which carry a sales
charge.
LETTER OF INTENTION. The reduced sales loads are also
applicable to investments made over a specified period pursuant to
a Letter of Intention (LOI), which should be read carefully prior
to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the
LOI. All investors have the option of making their investments
over a period of thirteen (13) months. Investors who are using
the Fund as a funding medium for a qualified retirement plan,
however, may opt to make the necessary investments called for by
the LOI over a forty-eight (48) month period. These qualified
retirement plans include IRA's, SEP, SARSEP, TSA, 401(k) plans,
TSA plans and 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more
invested during the specified period from the date of the LOI or
from a date within ninety (90) days prior thereto, upon written
request to Investor Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If
such aggregate amount is not actually invested, the difference in
the sales charge actually paid and the sales charge payable had
the LOI not been in effect is due from the investor. However, for
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the purchases actually made within the specified period (either 13
or 48 months), the sales charge applicable will not be higher than
that which would have been applied (including accumulations and
combinations) had the LOI been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow
sufficient Class A shares (approximately 5% of the aggregate) to
make up any difference in sales charges on the amount intended to
be invested and the amount actually invested, until such
investment is completed within the specified period, at which time
the escrow shares will be released. If the total investment
specified in the LOI is not completed, the Class A shares held in
escrow may be redeemed and the proceeds used as required to pay
such sales charge as may be due. By signing the LOI, the investor
authorizes Investor Services to act as his attorney-in-fact to
redeem any escrow shares and adjust the sales charge, if
necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional
shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS A SHARES
Investments in Class B shares are purchased at net asset
value per share without the imposition of a sales charge so that
the Fund will receive the full amount of the purchase payment.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are
redeemed within four years of date of purchase will be subject to
a contingent deferred sales charge ("CDSC") at the rates set forth
in the Class A and Class B Prospectus as a percentage of the
dollar amount subject to the CDSC. The charge will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the Class B shares being redeemed.
Accordingly, no CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains
distributions.
The amount of the CDSC, if any, will vary depending on the
number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares.
Solely for purposes of determining the number of years from the
time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on
the last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are
used in whole or in part by John Hancock Funds to defray its
expenses related to providing distribution-related services to the
Fund in connection with the sale of the Class B shares, such as
the payment of compensation to select Selling Brokers for selling
Class B shares. The combination of the CDSC and the distribution
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and service fees facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time
of the purchase. See the Class A and Class B Prospectus for
additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right
to pay the redemption price of shares of the Fund in whole or in
part in portfolio securities as prescribed by the Trustees. When
the shareholder sells portfolio securities received in this
fashion, he would incur a brokerage charge. Any such securities
would be valued for the purposes of making such payment at the
same value as used in determining net asset value. The Fund has
elected to be governed by Rule 18f-1 under the 1940 Act, pursuant
to which the Fund is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90 day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the
Prospectus, the Fund permits exchanges of shares of any class of
the Fund for shares of the same class in any other John Hancock
fund offering that class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the
Class A and Class B Prospectus, the Fund permits the establishment
of a Systematic Withdrawal Plan. Payments under this plan
represent proceeds arising from the redemption of Fund shares.
Since the redemption price of Fund shares may be more or less than
the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the
distribution of cash pursuant to this plan may result in
realization of gain or loss for purposes of Federal, state and
local income taxes. The maintenance of a Systematic Withdrawal
Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder
because of the initial sales charge payable on such purchases of
Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a
shareholder should not purchase Fund shares at the same time as a
Systematic Withdrawal Plan is in effect. The Fund reserves the
right to modify or discontinue the Systematic Withdrawal Plan of
any shareholder on 30 days' prior written notice to such
shareholder, or to discontinue the availability of such plan in
the future. The shareholder may terminate the plan at any time by
giving proper notice to Investor Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This
program is explained fully in the Fund's Class A and Class B
Prospectus and the Account Privileges Application. The program,
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as it relates to automatic investment checks, is subject to the
following conditions:
The investments will be drawn on or about the day of the
month indicated.
The privilege of making investments through the Monthly
Automatic Accumulation Program may be revoked by Investor Services
without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to
notify the shareholder as to the non-payment of any check.
The program may be discontinued by the shareholder either by
calling Investor Services or upon written notice to Investor
Services which is received at least five (5) business days prior
to the due date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund
shares may, within 120 days after the date of redemption, reinvest
without payment of a sales charge any part of the redemption
proceeds in shares of the same class of the Fund or another John
Hancock mutual fund, subject to the minimum investment limit in
that fund. The proceeds from the redemption of Class A shares may
be reinvested at net asset value without paying a sales charge in
Class A shares of the Fund or in Class A shares of another John
Hancock mutual fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from that redemption at net
asset value in additional shares of the class from which the
redemption was made. The shareholder's account will be credited
with the amount of any CDSC charged upon the prior redemption and
the new shares will continue to be subject to the CDSC. The
holding period of the shares acquired through reinvestment will,
for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares.
The Fund may modify or terminate the reinvestment privilege at any
time.
A redemption or exchange of Fund shares is a taxable
transaction for Federal income tax purposes even if the
reinvestment privilege is exercised, and any gain or loss realized
by a shareholder on the redemption or other disposition of Fund
shares will be treated for tax purposes as described under the
caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
Ownership in the Fund is represented by transferable shares
of beneficial interest. The Declaration of Trust permits the
Trustees to create an unlimited number of series and classes of
shares of the Trust and, with respect to each series and class, to
issue an unlimited number of full or fractional shares and to
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divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial
interests of the series.
Each share of each series or class of the Trust represents an
equal proportionate interest with each other in that series or
class, none having priority or preference over other shares of the
same series or class. The interest of investors in the various
series or classes of the Trust is separate and distinct. All
consideration received for the sales of shares of a particular
series or class of the Trust, all assets in which such
consideration is invested and all income, earnings and profits
derived from such investments will be allocated to and belong to
that series or class. As such, each such share is entitled to
dividends and distributions out of the net income belonging to
that series or class as declared by the Board of Trustees. Shares
of the Trust have a par value of $0.01 per share. The assets of
each series are segregated on the Trust's books and are charged
with the liabilities of that series and with a share of the
Trust's general liabilities. The Board of Trustees determines
those assets and liabilities deemed to be general assets or
liabilities of the Trust, and these items are allocated among each
series in proportion to the relative total net assets of each
series. In the unlikely event that the liabilities allocable to a
series exceed the assets of that series, all or a portion of such
liabilities may have to be borne by the other series.
Pursuant to the Declaration of Trust, the Trustees have
established, the Fund, and may authorize the creation of
additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios) and
additional classes within any series (which would be used to
distinguish among the rights of different categories of
shareholders, as might be required by future regulations or other
unforeseen circumstances). As of the date of this Statement of
Additional Information, the Trustees have authorized the issuance
of two classes of shares of the Fund, designated as Class A and
Class B. Class A and Class B shares of the Fund represent an
equal proportionate interest in the aggregate net asset values
attributable to that class of the Fund. Holders of Class A shares
and Class B shares each have certain exclusive voting rights on
matters relating to the Class A Plan and the Class B Plan,
respectively, of the Fund. The different classes of the Fund may
bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights
of any class of shares.
Dividends paid by the Fund, if any, with respect to each
class of shares will be calculated in the same manner, at the same
time and on the same day and will be in the same amount, except
that (i) the distribution and service fees relating to Class A and
Class B shares will be borne exclusively by that Class,
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(ii) Class B shares will pay higher distribution and service fees
than Class A shares and (iii) each of Class A shares and Class B
shares will bear any class expenses properly allocable to such
class of shares, subject to the conditions set forth in a private
letter ruling that the Fund has received from the Internal Revenue
Service relating to its multiple-class structure. Accordingly,
the net asset value per share may vary depending whether Class A
shares or Class B shares are purchased.
VOTING RIGHTS. Shareholders are entitled to a full vote for
each full share held. The Trustees themselves have the power to
alter the number and the terms of office of Trustees, and they may
at any time lengthen their own terms or make their terms of
unlimited duration (subject to certain removal procedures) and
appoint their own successors, provided that at all times at least
a majority of the Trustees have been elected by shareholders. The
voting rights of shareholders are not cumulative, so that holders
of more than 50% of the shares voting can, if they choose, elect
all Trustees being voted upon, while the holders of the remaining
shares would be unable to elect any Trustees. Although the Trust
need not hold annual meetings of shareholders, the Trustees may
call special meetings of shareholders for action by shareholder
vote as may be required by the 1940 Act or the Declaration of
Trust. Also, a shareholder's meeting must be called if so
requested in writing by the holders of record of 10% or more of
the outstanding shares of the Trust. In addition, the Trustees
may be removed by the action of the holders of record of
two-thirds or more of the outstanding shares.
SHAREHOLDER LIABILITY. The Declaration of Trust provides no
Trustee, officer, employee or agent of the Trust is liable to the
Trust or any series or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in
connection with the affairs of the Trust, except as such liability
may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his duties. It also
provides that all third persons shall look solely to the series'
property for satisfaction of claims arising in connection with the
affairs of the series. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or
agent is entitled to be indemnified against all liability in
connection with the affairs of the Trust.
As a Massachusetts business trust, the Trust is not required
to issue share certificates. The Trust shall continue without
limitation of time subject to the provisions in the Declaration of
Trust concerning termination by action of the shareholders.
Under Massachusetts law, shareholders of a Massachusetts
business trust could, under certain circumstances, be held
personally liable for acts or obligations of the trust. However,
the Trust's Declaration of Trust contains an express disclaimer of
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shareholder liability for acts, obligations and affairs of the
Trust. The Declaration of Trust also provides for indemnification
out of the Trust's assets for all losses and expenses of any
shareholder held personally liable by reason of being or having
been a shareholder. Liability is therefore limited to
circumstances in which the Trust itself would be unable to meet
its obligations, and the possibility of this occurrence is remote.
TAX STATUS
The Fund has qualified and has elected to be treated as a
"regulated investment company" under Subchapter M of the Code and
intends to continue to so qualify in the future. As such and by
complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the
diversification of its assets, each Fund will not be subject to
Federal income tax on its net income (including net short-term and
long-term capital gains) which is distributed to shareholders at
least annually in accordance with the timing requirements of the
Code.
The Fund will be subject to a 4% non-deductible Federal
excise tax on certain amounts not distributed (and not treated as
having been distributed) on a timely basis in accordance with
annual minimum distribution requirements. The Fund intends under
normal circumstances to avoid liability for such tax by satisfying
such distribution requirements.
Distributions from the Fund's current or accumulated earnings
and profits ("E&P"), as computed for Federal income tax purposes,
will be taxable as described in the Fund's Prospectus whether
taken in shares or in cash. Distributions, if any, in excess of
E&P will constitute a return of capital, which will first reduce
an investor's tax basis in Fund shares and thereafter (after such
basis is reduced to zero) will generally give rise to capital
gains. Shareholders electing to receive distributions in the form
of additional shares will have a cost basis for Federal income tax
purposes in each share so received equal to the amount of cash
they would have received had they elected to receive the
distributions in cash, divided by the number of shares received.
For the Fund, the amount of net short-term and long-term
capital gains, if any, in any given year will vary depending upon
the Adviser's current investment strategy and whether the Adviser
believes it to be in the best interest of the Fund to dispose of
portfolio securities or enter into options or futures transactions
that will generate capital gains. At the time of an investor's
purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's
portfolio. Consequently, subsequent distributions from such
appreciation may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the
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distributions, reduced below the investor's cost for such shares,
and the distributions in reality represent a return of a portion
of the purchase price.
Upon a redemption of shares of the Fund (including by
exercise of the exchange privilege) a shareholder may realize a
taxable gain or loss depending upon his basis in his shares. Such
gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-
term or short-term, depending upon the shareholder's tax holding
period for the shares. A sales charge paid in purchasing Class A
shares of the Fund cannot be taken into account for purposes of
determining gain or loss on the redemption or exchange of such
shares within 90 days after their purchase to the extent shares of
the Fund or another John Hancock Fund are subsequently acquired
without payment of a sales charge pursuant to the reinvestment or
exchange privilege. Such disregarded load will result in an
increase in the shareholder's tax basis in the shares subsequently
acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced
with other shares of the Fund within a period of 61 days beginning
30 days before and ending 30 days after the shares are disposed
of, such as pursuant to the Dividend Reinvestment Plan. In such a
case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss. Any loss realized upon the redemption of
shares with a tax holding period of six months or less will be
treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to
such shares.
Although its present intention is to distribute all net
short-term and long-term capital gains, if any, the Fund reserves
the right to retain and reinvest all or any portion of its "net
capital gain," which is the excess, as computed for Federal income
tax purposes, of net long-term capital gain over net short-term
capital loss in any year. The Fund will not in any event
distribute net long-term capital gains realized in any year to the
extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not
exhausted by the carryforward of prior years' capital losses, it
would be subject to Federal income tax in the hands of the Fund.
Each shareholder would be treated for Federal income tax purposes
as if the Fund had distributed to him on the last day of its
taxable year his pro rata share of such excess, and he had paid
his pro rata share of the taxes paid by the Fund and reinvested
the remainder in the Fund. Accordingly, each shareholder would
(a) include his pro rata share of such excess as long-term capital
gain income in his return for his taxable year in which the last
day of the Fund's taxable year falls, (b) be entitled either to a
tax credit on his return for, or to a refund of, his pro rata
share of the taxes paid by the Fund, and (c) be entitled to
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increase the adjusted tax basis for his shares in the Fund by the
difference between his pro rata share of such excess and his pro
rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to
carryforward a net capital loss in any year to offset its own net
capital gains, if any, during the eight years following the year
of the loss. To the extent subsequent net capital gains are
offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be
distributed as such to shareholders. The Fund has $562,000 of
capital loss carryforwards as of the tax year ended December 31,
1994, of which $107,000 expires in 2001 and $455,000 in 2002,
available to offset future net capital gains.
The Fund's dividends and capital gain distributions will
generally not qualify for the corporate dividends received
deduction.
If the Fund invests in certain PIKs, zero coupon securities
or certain increasing rate securities (and, in general, any other
securities with original issue discount or with market discount if
the Fund elects to include market discount in income currently) it
must accrue income on such investments prior to the receipt of the
corresponding cash payments. However, the Fund must distribute,
at least annually, all or substantially all of its net income,
including such accrued income, to shareholders to qualify as a
regulated investment company under the Code and avoid Federal
income and excise taxes. Therefore, the Fund may have to dispose
of its portfolio securities under disadvantageous circumstances to
generate cash, or may have to leverage itself by borrowing the
cash, to satisfy distribution requirements.
The Fund may be required to account for its transactions in
forward rolls in a manner that, under certain circumstances, may
limit the extent of its participation in such transactions.
Different tax treatment, including penalties on certain
excess contributions and deferrals, certain pre-retirement and
post-retirement distributions and certain prohibited transactions,
is accorded to accounts maintained as qualified retirement plans.
Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment
companies like the Fund may restrict the Fund's ability to enter
into futures and options.
The foregoing discussion relates solely to U.S. Federal
income tax law as applicable to U.S. persons (i.e., U.S. citizens
or residents and U.S. domestic corporations, partnerships, trusts
or estates) subject to tax under such law. The discussion does
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not address special tax rules applicable to certain classes of
investors, such as tax-exempt entities, insurance companies, and
financial institutions. Dividends, capital gain distributions,
and ownership of or gains realized on the redemption (including an
exchange) of Fund shares may also be subject to state and local
taxes. Shareholders should consult their own tax advisers as to
the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their
particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business
with which their investment in the Fund is effectively connected
will be subject to U.S. Federal income tax treatment that is
different from that described above. These investors may be
subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts
treated as ordinary dividends from a Fund and, unless an effective
IRS Form W-8 or authorized substitute is on file, to 31% backup
withholding on certain other payments from the Fund. Non-U.S.
investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in
the Fund.
The Fund is not subject to Massachusetts corporate excise or
franchise taxes. Provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to
pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
For the 31-day period ended March 31, 1995, the annualized
yield for the Fund's Class A shares and Class B shares were 6.20%
and 5.78%, respectively. Average annual return for the Fund's
Class A and Class B shares for the period from December 31, 1991
(inception of the Fund) through March 31, 1995 was 3.35% and
3.24%, respectively. For the one year period ended March 31, 1995
annual returns were (0.33)% and (0.33)%, respectively, for Class A
and Class B shares of the Fund.
The Fund's yield is computed by dividing net investment
income per share determined for a 30-day period by the maximum
offering price per share (which includes the full sales charge) on
the last day of the period, according to the following standard
formula:
Yield = 2 [ (a-b + 1 )6 -1]
---
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
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c = the average daily number of fund shares outstanding
during the period that would be entitled to receive
dividends.
d = the maximum offering price per share on the last day of
the period (NAV where applicable).
The Fund's total return is computed by finding the average
annual compounded rate of return over the 1-year, 5-year, and
10-year periods that would equate the initial amount invested to
the ending redeemable value according to the following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return
n = number of years
ERV= ending redeemable value of a hypothetical $1,000
investment made at designated periods or fraction
thereof.
In the case of Class A shares or Class B shares, this
calculation assumes the maximum sales charge is included in the
initial investment or the CDSC is applied at the end of the
period. This calculation also assumes that all dividends and
distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is
determined by annualizing the result of dividing the declared
dividends of the Fund during the period stated by the maximum
offering price or net asset value at the end of the period.
In addition to average annual total returns, the Fund may
quote unaveraged or cumulative total returns reflecting the simple
change in value of an investment over a stated period. Cumulative
total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Fund's
maximum sales charge on Class A shares or the CDSC on Class B
shares into account. Excluding the Fund's sales charge on Class A
shares and the CDSC on Class B shares from a total return
calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the
Fund's yield and total return will be compared to indices of
mutual funds and bank deposit vehicles such as Lipper Analytical
Services, Inc.'s "Lipper -- Fixed Income Fund Performance
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Analysis," a monthly publication which tracks net assets, total
return, and yield on approximately 1,700 fixed income mutual funds
in the United States. Ibbotson and Associates, CDA Weisenberger
and F.C. Towers are also used for comparison purposes, as well a
the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in
national financial publications such as MONEY Magazine, FORBES,
BUSINESS WEEK, THE WALL STREET JOURNAL, MICROPAL, INC.,
MORNINGSTAR, STANGER'S and BARRON'S, etc. will also be utilized.
The Fund's promotional and sales literature may make reference to
the Fund's "beta." Beta is a reflection of the market-related
risk of the Fund by showing how responsive the Fund is to the
market.
The performance of the Fund is not fixed or guaranteed.
Performance quotations should not be considered to be
representations of performance of the Fund for any period in the
future. The performance of the Fund is a function of many factors
including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of
portfolio securities; sales and redemptions of shares of
beneficial interest; and changes in operating expenses are all
examples of items that can increase or decrease the Fund's
performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio
securities for the Fund are made by the Adviser pursuant to
recommendations made by its investment committee, which consists
of officers and directors of the Adviser and affiliates and
officers and Trustees who are interested persons of the Fund.
Orders for purchases and sales of securities are placed in a
manner which, in the opinion of the Adviser will offer the best
price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a
commission or commissions paid by the issuer and transactions with
dealers serving as market makers reflect a "spread." Investments
in debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as
brokers; no brokerage commissions are payable on such
transactions.
The Fund's primary policy is to execute all purchases and
sales of portfolio instruments at the most favorable prices
consistent with best execution, considering all of the costs of
the transaction including brokerage commissions. This policy
governs the selection of brokers and dealers and the market in
which a transaction is executed. Consistent with the foregoing
primary policy, the Rules of Fair Practice of the NASD and other
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policies that the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions.
To the extent consistent with the foregoing, the Fund will be
governed in the selection of brokers and dealers, and the
negotiation of brokerage commission rates and dealer spreads, by
the reliability and quality of the services, including primarily
the availability and value of research information and to a lesser
extent statistical assistance furnished to the Adviser, and their
value and expected contribution to the performance of the Fund.
It is not possible to place a dollar value on information and
services to be received from brokers and dealers, since it is only
supplementary to the research efforts of the Adviser. The receipt
of research information is not expected to reduce significantly
the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may
benefit the Life Company or other advisory clients of the Adviser,
and conversely, brokerage commissions and spreads paid by other
advisory clients of the Adviser may result in research information
and statistical assistance beneficial to the Fund. The Fund will
not make any commitments to allocate portfolio transactions upon
any prescribed basis. While the Fund's officers will be primarily
responsible for the allocation of the Fund's brokerage business,
their policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by
the Trustees.
As permitted by Section 28(e) of the Securities Exchange Act
of 1934, the Fund may pay to a broker which provides brokerage and
research services to the Fund an amount of disclosed commission in
excess of the commission which another broker would have charged
for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that the price is
reasonable in light of the services provided and to policies that
the Trustees may adopt from time to time. [During the fiscal year
ended March 31, 1995, the Fund did not pay commissions as
compensation to any brokers for research services such as
industry, economic and company reviews and evaluations of
securities.]
The Adviser's indirect parent, the Life Company, is the
indirect sole shareholder of John Hancock Freedom Securities
Corporation and its subsidiaries, three of which, Tucker Anthony
Incorporated ("Tucker Anthony") John Hancock Distributors, Inc.
("John Hancock Distributors") and Sutro & Company, Inc. ("Sutro"),
are broker-dealers ("Affiliated Brokers"). Pursuant to procedures
determined by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio
transactions with or through Tucker Anthony, Sutro or John Hancock
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Distributors. [During the year ended March 31, 1995, the Fund did
not execute any portfolio transactions with then affiliated
brokers.]
Any of the Affiliated Brokers may act as broker for the Fund
on exchange transactions, subject, however, to the general policy
of the Fund set forth above and the procedures adopted by the
Trustees pursuant to the 1940 Act. Commissions paid to an
Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers
in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be
placed with an Affiliated Broker if the Fund would have to pay a
commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other
most favored, but unaffiliated, customers, except for accounts for
which the Affiliated Broker acts as a clearing broker for another
brokerage firm, and any customers of the Affiliated Broker not
comparable to the Fund as determined by a majority of the Trustees
who are not interested persons (as defined in the 1940 Act) of the
Fund, the Adviser or the Affiliated Brokers. Because the Adviser,
which is affiliated with the Affiliated Brokers, has, as an
investment adviser to the Fund, the obligation to provide
investment management services, which includes elements of
research and related investment skills, such research and related
skills will not be used by the Affiliated Brokers as a basis for
negotiating commissions at a rate higher than that determined in
accordance with the above criteria. The Fund will not effect
principal transactions with Affiliated Brokers. The Fund may,
however, purchase securities from other members of underwriting
syndicates of which Tucker Anthony, Sutro and John Hancock
Distributors are members, but only in accordance with the policy
set forth above and procedures adopted and reviewed periodically
by the Trustees.
The turnover rate for the Fund for the fiscal years ended
March 31, 1994 and 1995, were 244% and 341% respectively. Such
rates reflect the difference between the years' varying market
conditions.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116,
Boston, MA 02205-9116, a wholly owned indirect subsidiary of the
Life Company, is the transfer and dividend paying agent for the
Fund. The Fund pays Investor Services monthly a transfer agent
fee equal to $22.50 per account for the Class A shares and $20.00
per account for the Class B shares on an annual basis, plus out-
of-pocket expenses.
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CUSTODY OF THE FUND
Fund securities are held pursuant to custodian agreements
between the Trust on behalf of the Fund and Investors Bank and
Trust ("IBT") 24 Federal Street, Boston, Massachusetts. Under the
custodian agreements, IBT performs custody, portfolio and fund
accounting services.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston,
Massachusetts 02116, has been selected as the independent auditors
of the Fund. The financial statements of the Fund included in the
Prospectus and this Statement of Additional Information have been
audited by Ernst & Young LLP for the periods indicated in their
report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
FINANCIAL STATEMENTS
(Financial Statements are located in the Fund's annual report
which is an exhibit to the Proxy Statement/Prospectus in the
Registration Statement on Form N-14.)
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EXHIBIT B
JOHN HANCOCK U.S. GOVERNMENT TRUST
JOHN HANCOCK INTERMEDIATE GOVERNMENT TRUST
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MAY 15, 1995
This Statement of Additional Information ("SAI") provides
information about John Hancock U.S. Government Trust ("U.S. Government
Fund") and John Hancock Intermediate Government Trust ("Intermediate
Government Fund"; each of U.S. Government Fund and Intermediate
Government Fund, a "Fund" and collectively, the "Funds"), each a
series of John Hancock Bond Fund (the "Trust"), in addition to the
information that is contained in the Funds' Prospectuses, each dated
May 15, 1995.
This SAI is not a prospectus. It should be read in conjunction
with each Fund's Prospectus, copies of which can be obtained free of
charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Cross- Cross-
Referenced Referenced to
Statement of to U.S. Gov- Intermediate
Additional ernment Fund Government
Information Prospectus Fund Prospectus
Page Page Page
----------- ----------- ---------------
<S> <C> <C> <C>
Organization of the Trust............... 2 8 7
Investment Objectives and Policies...... 2 4 4
Certain Investment Practices............ 3 4 4
Investment Restrictions................. 10 4 4
Those Responsible for Management........ 12 8 7
Investment Advisory and Other Services . 20 8 7
Distribution Contracts.................. 23 9 8
Net Asset Value......................... 25 15 14
Initial Sales Charge on Class A Shares.. 26 9 8
Deferred Sales Charge on Class B Shares. 27 9 8
Special Redemptions..................... 27 9 8
Additional Services and Programs........ 28 22 22
Description of the Trust's Shares....... 29 8 7
Tax Status.............................. 31 11 11
Calculation of Performance.............. 33 12 12
Brokerage Allocation.................... 37 N/A N/A
Transfer Agent Services................. 39 Back Cover Back Cover
Custody of Portfolio.................... 39 Back Cover Back Cover
Independent Auditors.................... 40 Back Cover Back Cover
Financial Statements.................... F-1 3 3
</TABLE>
<PAGE> 186
ORGANIZATION OF THE TRUST
The Trust is an open-end management investment company organized
as a Massachusetts business trust under a Declaration of Trust dated
December 12, 1984. The Trust currently has six series, including the
Funds. Prior to December 22, 1994, the Trust was called Transamerica
Bond Fund and the Funds were called Transamerica U.S. Government Trust
and Transamerica Intermediate Government Trust.
The Fund is managed by John Hancock Advisers, Inc. (the
"Adviser"), a wholly-owned indirect subsidiary of John Hancock Mutual
Life Insurance Company (the "Life Company"), chartered in 1862 with
national headquarters at John Hancock Place, Boston, Massachusetts.
John Hancock Funds, Inc. ("John Hancock Funds") acts as principal
distributor of the shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
JOHN HANCOCK U.S. GOVERNMENT TRUST: The investment objective of
U.S. Government Fund is to earn a high level of current income
consistent with safety of principal by investing in debt obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including certificates of the Government National
Mortgage Association and U.S. Treasury obligations. In order to hedge
against changes in interest rates, U.S. Government Fund may purchase
put and call options and sell interest rate futures contracts and call
options on such contracts. Investments of U.S. Government Fund are
limited to those which a federally chartered savings and loan
association may, without limitation as to percentage of assets, invest
in, sell, redeem, hold or otherwise deal with.
JOHN HANCOCK INTERMEDIATE GOVERNMENT TRUST: The investment
objective of Intermediate Government Fund is to earn a high level of
current income, consistent with the preservation of capital and
maintenance of liquidity. Intermediate Government Fund invests in
debt obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Securities") having an
average dollar weighted maturity of between one and ten years.
Mortgages backing the securities purchased by the Funds include
not only conventional 30-year fixed rate mortgages but also graduated
payment mortgages and 15-year mortgages. All of these mortgages can
be used to create pass through securities.
GNMA CERTIFICATES. Certificates of the Government National
Mortgage Association ("GNMA") are mortgage-backed securities, which
evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly
by the borrower over the term of the loan rather than returned in a
lump sum at maturity. GNMA Certificates entitle the holder to receive
a share of all interest and principal prepayments paid and owed on the
mortgage pool, net of fees paid to the "issuer" and GNMA, regardless
of whether or not the mortgagor actually makes the payment. The
National Housing Act authorizes GNMA to guarantee the timely payment
of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmer's
Home Administration ("FHMA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full faith
and credit of the United States. The GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary to make any
payments required under its guarantee.
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FNMA SECURITIES. Established in 1938 to create a secondary
market in mortgages, the Federal National Mortgage Association
("FNMA") is a government-sponsored corporation owned entirely by
private stockholders that purchases residential mortgages from a list
of approved seller/servicers. FNMA issues guaranteed mortgage
pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each FNMA Certificate represents a
pro rata share of all interest and principal payments made and owed on
the underlying pool. FNMA guarantees timely payment of interest on
FNMA Certificates and the stated principal amount.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation
("FHLMC") was created in 1970 through enactment of Title III of the
Emergency Home Finance Act of 1970. Its purpose is to promote
development of a nationwide secondary market in conventional
residential mortgages. FHLMC presently issues two types of mortgage
pass-through securities, mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA
Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owed on the underlying pool.
The FHLMC guarantees timely monthly payment of interest on PCs and the
stated principal amount.
CERTAIN INVESTMENT PRACTICES
LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, a Fund may, from time to time, lend securities from its
portfolios to brokers, dealers and financial institutions such as
banks and trust companies. Such loans will be secured by collateral
consisting of cash or U.S. Government securities which will be
maintained in an amount equal to at least 100% of the current market
value of the loaned securities. During the period of the loan, the
Fund will receive the income on both the loaned securities and the
collateral and thereby increase its return. Cash collateral will be
invested in short-term high quality debt securities, which will
increase the current income of the Fund. The loans will be terminable
by the Funds at any time and by the borrower on one day's notice. The
Funds will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as rights to interest or
other distributions or voting rights on important issues. The Funds
may pay reasonable fees to persons unaffiliated with the Funds for
services in arranging such loans. Lending of portfolio securities
involves a risk of failure by the borrower to return the loaned
securities, in which event the Funds may incur a loss.
SECURITIES TRANSACTIONS SUBJECT TO DELAYED SETTLEMENT. As
described under "Investments, Techniques and Risk Factors" in each
Fund's Prospectus, securities may be purchased for which the normal
settlement date occurs later than the settlement date which is normal
for U.S. Government obligations. In no event, however, will the
settlement date in the case of Intermediate Government Fund occur
later than the 29th day after the trade date. Securities held in a
Fund's portfolio are subject to changes in value (both experiencing
appreciation when interest rates decline and depreciation when
interest rates rise) based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in
the level of interest rates. Purchasing securities subject to delayed
settlement can involve a risk that the yields available in the market
when the delivery takes place may actually be higher than those
obtained in the transaction itself. A separate account of the Fund
consisting of cash or liquid, high grade debt securities equal to the
amount of the delayed settlement commitments will be established at
the Trust's custodian bank. For the purpose of determining the
adequacy of the securities in the account, the deposited securities
will be valued at market value using the valuation procedures for all
other investments. If the market or fair value of such securities
declines, additional cash or liquid, high grade debt securities will
be placed in the account daily so
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that the value of the account will equal the amount of such
commitments by the Fund. On the settlement date of these delayed
settlement securities, the Fund will meet its obligations from the
available cash flow, sale of securities held in the separate account,
sale of other securities or, although it would not normally expect to
do so, from sale of the delayed settlement securities themselves
(which may have a value greater or lesser than the Fund's payment
obligations). Sale of securities to meet such obligations will
generally result in the realization of capital gains or losses.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Funds may
purchase securities on a when-issued basis. "When-issued" refers to
securities whose terms are available and for which a market exists,
but which have not been issued. A Fund will engage in when-issued
transactions with respect to securities purchased for its portfolio in
order to obtain what is considered to be an advantageous price and
yield at the time of the transaction. For when-issued transactions,
no payment is made until delivery is due, often a month or more after
the purchase.
When a Fund engages in when-issued transactions, it relies on the
seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund losing the
opportunity to obtain a price and yield considered to be advantageous.
The purchase of securities on a when-issued basis also involves a risk
of loss if the value of the security to be purchased declines prior to
the settlement date.
On the date that a Fund enters into an agreement to purchase
securities on a when-issued basis, the Fund will segregate in a
separate account cash or short-term money market instruments equal in
value to the Fund's commitment. These assets will be valued daily at
market, and additional cash or securities will be segregated in a
separate account to the extent that the total value of the assets in
the account declines below the amount of the when-issued commitments.
REPURCHASE AGREEMENTS. The Funds may enter into repurchase
agreements. A repurchase agreement is a contract under which a Fund
would acquire a security for a relatively short period (generally not
more than 7 days) subject to the obligation of the seller to
repurchase and the Fund to resell such security at a fixed time and
price (representing the Fund's cost plus interest). A Fund will enter
into repurchase agreements only with member banks of the Federal
Reserve System and with securities dealers. The Adviser will
continuously monitor the creditworthiness of the parties with whom a
Fund enters into repurchase agreements. The Funds have established a
procedure providing that the securities serving as collateral for each
repurchase agreement must be delivered to the Funds' custodian either
physically or in book-entry form and that the collateral must be
marked to market daily to ensure that each repurchase agreement is
fully collateralized at all times. In the event of bankruptcy or
other default by a seller of a repurchase agreement, a Fund could
experience delays in liquidating the underlying securities and could
experience losses, including the possible decline in the value of the
underlying securities during the period in which the Fund seeks to
enforce its rights thereto, possible subnormal levels of income and
lack of access to income during this period, and the expense of
enforcing its rights.
GOVERNMENT SECURITIES. Certain U.S. Government securities,
including U.S. Treasury bills, notes and bonds, and Government
National Mortgage Association certificates ("Ginnie Maes"), are
supported by the full faith and credit of the United States. Certain
other U.S. Government securities, issued or guaranteed by Federal
agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by
the right of the issuer to borrow from the U.S. Treasury. These
securities include obligations of the Federal Home Loan Mortgage
Corporation ("Freddie Macs"), and obligations
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<PAGE> 189
supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can
be given that the U.S. Government will provide financial support to
such Federal agencies, authorities, instrumentalities and government
sponsored enterprises in the future.
MORTGAGE-BACKED SECURITIES. The Funds may invest in mortgage
pass-through certificates and multiple-class pass-through securities,
such as real estate mortgage investment conduits ("REMIC")
pass-through certificates, collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities ("SMBS"), and other
types of "Mortgage-Backed Securities" that may be available in the
future.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Guaranteed mortgage
pass-through securities represent participation interests in pools of
residential mortgage loans and are issued by U.S. Governmental or
private lenders and guaranteed by the U.S. Government or one of its
agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("Ginnie Mae"), the Federal
National Mortgage Association ("Fannie Mae") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates are
guaranteed by the full faith and credit of the U.S. Government for
timely payment of principal and interest on the certificates. Fannie
Mae certificates are guaranteed by Fannie Mae, a federally chartered
and privately owned corporation, for full and timely payment of
principal and interest on the certificates. Freddie Mac certificates
are guaranteed by Freddie Mac, a corporate instrumentality of the U.S.
Government, for timely payment of interest and the ultimate collection
of all principal of the related mortgage loans.
MULTIPLE-CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED
MORTGAGE OBLIGATIONS. CMOs and REMIC pass-through or participation
certificates may be issued by, among others, U.S. Government agencies
and instrumentalities as well as private lenders. CMOs and REMIC
certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several
classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. Generally,
interest is paid or accrues on all classes of CMOs or REMIC
certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or
Freddie Mac certificates but also may be collateralized by other
mortgage assets such as whole loans or private mortgage pass-through
securities. Debt service on CMOs is provided from payments of
principal and interest on the underlying mortgaged assets and any
reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under
the Code and invests in certain mortgages primarily secured by
interests in real property and other permitted investments. Investors
may purchase "regular" and "residual" interest shares of beneficial
interest in a REMIC, although the Funds do not intend to invest in
residual interests.
STRIPPED MORTGAGE-BACKED SECURITIES. SMBS are derivative
multiple-class mortgage- backed securities. SMBS are usually
structured with two classes that receive different proportions of
interest and principal distributions on a pool of mortgage assets. A
typical SMBS will have one class receiving some of the interest and
most of the principal, while the other class will receive most of the
interest and the remaining principal. In the most extreme case, one
class will receive all of the interest (the "interest only" class)
while the other class will receive all of the principal
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(the "principal only" class). The yields and market risk of interest
only and principal only SMBS, respectively, may be more volatile than
those of other fixed income securities. The staff of the SEC
considers privately issued SMBS to be illiquid.
STRUCTURED OR HYBRID NOTES. The Funds may invest in "structured"
or "hybrid" notes. The distinguishing feature of a structured or
hybrid note is that the amount of interest and/or principal payable on
the note is based on the performance of a benchmark asset or market
other than fixed-income securities or interest rates. Examples of
these benchmarks include stock prices, currency exchange rates and
physical commodity prices. Investing in a structured note allows a
Fund to gain exposure to the benchmark market while fixing the maximum
loss that the Fund may experience in the event that market does not
perform as expected. Depending on the terms of the note, a Fund may
forego all or part of the interest and principal that would be payable
on a comparable conventional note; the Fund's loss cannot exceed this
foregone interest and/or principal. An investment in structured or
hybrid notes involves risks similar to those associated with a direct
investment in the benchmark asset.
RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES.
Investing in Mortgage- Backed Securities involves certain risks,
including the failure of a counter-party to meet its commitments,
adverse interest rate changes and the effects of prepayments on
mortgage cash flows. In addition, investing in the lowest tranche of
CMOs and REMIC certificates involves risks similar to those associated
with investing in equity securities. Further, the yield
characteristics of Mortgage-Backed Securities differ from those of
traditional fixed income securities. The major differences typically
include more frequent interest and principal payments (usually
monthly), the adjustability of interest rates, and the possibility
that prepayments of principal may be made substantially earlier than
their final distribution dates.
Prepayment rates are influenced by changes in current interest
rates and a variety of economic, geographic, social and other factors
and cannot be predicted with certainty. Both adjustable rate mortgage
loans and fixed rate mortgage loans may be subject to a greater rate
of principal prepayments in a declining interest rate environment and
to a lesser rate of principal prepayments in an increasing interest
rate environment. Under certain interest rate and prepayment rate
scenarios, a Fund may fail to recoup fully its investment in
Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When the Fund reinvests
amounts representing payments and unscheduled prepayments of
principal, it may receive a rate of interest that is lower than the
rate on existing adjustable rate mortgage pass-through securities.
Thus, Mortgage-Backed Securities, and adjustable rate mortgage
pass-through securities in particular, may be less effective than
other types of U.S. Government securities as a means of "locking in"
interest rates.
Conversely, in a rising interest rate environment, a declining
prepayment rate will extend the average life of many Mortgage-Backed
Securities. This possibility is often referred to as extension risk.
Extending the average life of a Mortgage-Backed Security increases the
risk of depreciation due to future increases in market interest rates.
RISK ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT
SECURITIES. Different types of derivative debt securities are subject
to different combinations of prepayment, extension and/or interest
rate risk. Conventional mortgage pass-through securities and
sequential pay CMOs are subject to all of these risks, but are
typically not leveraged. Thus, the magnitude of exposure may be less
than for more leveraged Mortgage-Backed Securities.
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The risk of early prepayments is the primary risk associated with
interest only debt securities ("IOs"), super floaters, other leveraged
floating rate instruments and Mortgage-Backed Securities purchased at
a premium to their par value. In some instances, early prepayments
may result in a complete loss of investment in certain of these
securities. The primary risks associated with certain other
derivative debt securities are the potential extension of average life
and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the
Cost of Funds Index ("COFI floaters"), other "lagging rate" floating
rate securities, floating rate securities that are subject to a
maximum interest rate ("capped floaters"), Mortgage-Backed Securities
purchased at a discount, leveraged inverse floating rate securities
("inverse floaters"), principal only debt securities ("POs"), certain
residual or support tranches of CMOs and index amortizing notes.
Index amortizing notes are not Mortgage-Backed Securities, but are
subject to extension risk resulting from the issuer's failure to
exercise its option to call or redeem the notes before their stated
maturity date. Leveraged inverse IOs combine several elements of the
Mortgage-Backed Securities described above and thus present an
especially intense combination of prepayment, extension and interest
rate risks.
Planned amortization class ("PAC") and target amortization class
("TAC") CMO bonds involve less exposure to prepayment, extension and
interest rate risk than other Mortgage-Backed Securities, provided
that prepayment rates remain within expected prepayment ranges or
"collars." To the extent that prepayment rates remain within these
prepayment ranges, the residual or support tranches of PAC and TAC
CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
Other types of floating rate derivative debt securities present
more complex types of interest rate risks. For example, range
floaters are subject to the risk that the coupon will be reduced to
below market rates if a designated interest rate floats outside of a
specified interest rate band or collar. Dual index or yield curve
floaters are subject to depreciation in the event of an unfavorable
change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual
period. Thus, the type of risk involved in these securities depends
on the terms of each individual X-reset floater.
The Funds are permitted to engage in certain hedging techniques
involving options and futures transactions in order to reduce the
effect of interest rate movements affecting the market values of the
investments held, or intended to be purchased, by the Funds.
OPTIONS ON DEBT SECURITIES. The U.S. Government Fund may
purchase put and call options on debt securities which are traded on a
national securities exchange (an "Exchange") to protect its holdings
in an underlying or related security against a substantial decline in
market value. Securities are considered related if their price
movements generally correlate to one another. The purchase of put
options on debt securities which are related to securities held in its
portfolio will enable the Fund to protect, at least partially,
unrealized gains in an appreciated security in its portfolio without
actually selling the security. In addition, the Fund may continue to
receive interest income on the security. The purchase of call options
on debt securities may help to protect against substantial increases
in prices of securities the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner.
The U.S. Government Fund may sell put and call options it has
previously purchased, which could result in a net gain or loss
depending on whether the amount realized on the sale is
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<PAGE> 192
more or less than the premium and other transaction costs paid in
connection with the option which is sold.
The purchase of put and call options involves certain risks. If
a put or call option purchased by the U.S. Government Fund is not sold
when it has remaining value, and if the market price of the underlying
security remains equal to or greater than the exercise price, in the
case of a put, or equal to or less than the exercise price, in the
case of a call, the Fund will lose its entire investment in the
option. Also, where a put or a call option on a particular security
is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the
price of the related security.
The U.S. Government Fund will not invest in a put or a call
option if as a result the amount of premiums paid for such options
then outstanding would exceed 10% of the Fund's total assets.
FUTURES CONTRACTS AND RELATED OPTIONS. The Funds may engage in
the purchase and sale of interest rate futures contracts ("financial
futures") and related options for the purposes and subject to the
limitations described below. Currently, the Funds may engage in such
transactions with respect to U.S. Treasury Bonds, U.S. Treasury Notes,
and GNMA's on the Chicago Board of Trade and with respect to U.S.
Treasury bills on the International Money Market at the Chicago
Mercantile Exchange.
The Intermediate Government Fund may purchase financial futures
contracts only as a hedge against changes in the general level of
interest rates. The U.S. Government Fund may purchase financial
futures contracts only to close an existing short position in a
futures contract. The purchase of a financial futures contract
obligates the buyer to accept and pay for the specific type of debt
security called for in the contract at a specified future time and at
a specified price. A Fund would purchase a financial futures contract
when it is not fully invested in long-term debt securities but wishes
to defer its purchases for a time until it can invest in such
securities in an orderly manner or because short-term yields are
higher than long-term yields. Such purchases would enable the Fund to
earn the income on a short-term security while at the same time
minimizing the effect of all or part of an increase in the market
price of the long-term debt security which the Fund intends to
purchase in the future. A rise in the price of the long-term debt
security prior to its purchase either would generally be offset by an
increase in the value of the futures contract purchased by the Fund or
avoided by taking delivery of the debt securities under the futures
contract.
The Funds may sell financial futures contracts only as a hedge
against changes in interest rates. The sale of a financial futures
contract obligates the seller to deliver the specific type of debt
security called for in the contract at a specified future time and at
a specified price. A Fund would sell a financial futures contract in
order to continue to receive the income from a long-term debt
security, while endeavoring to avoid part or all of the decline in
market value of that security which would accompany an increase in
interest rates. If interest rates did rise, a decline in the value of
the debt security held by the Fund would be substantially offset by an
increase in the value of the futures contract sold by the Fund. While
the Fund could sell a long-term debt security and invest in a
short-term security, ordinarily the Fund would give up income on its
investment, since long-term rates normally exceed short-term rates.
In addition, the Funds may engage in certain transactions
involving put and call options on financial futures contracts to hedge
against changes in interest rates. The U.S. Government Fund may
purchase put and call options and sell call options on financial
futures contracts for hedging
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<PAGE> 193
purposes and may enter into closing transactions with respect to such
options to close an existing position. The Intermediate Government
Fund may purchase put and call options on financial futures contracts
which are traded on a securities exchange or board of trade for
hedging purposes and may also enter into closing transactions with
respect to such options to close an existing position. Options on
financial futures contracts are similar to options on securities
except that a put option on a financial futures contract gives the
purchaser the right in return for the premium paid to assume a short
position in a financial futures contract and a call option on a
financial futures contract gives the purchaser the right in return for
the premium paid to assume a long position in a financial futures
contract.
A Fund may hedge up to the full value of its portfolio through
the use of options and futures. At the time a Fund purchases a
financial futures contract or a call option on such a futures
contract, an amount of cash or U.S. Government Securities at least
equal to the market value of the futures contract will be deposited in
a segregated account with the Funds' Custodian to collateralize the
position and thereby insure that such futures contract is unleveraged.
A Fund may not purchase or sell futures contracts or related put or
call options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures and related options positions
and the amount of premiums paid for related options (measured at the
time of investment) would exceed 5% of the Fund's total assets.
While a Fund's hedging transactions may protect the Fund against
adverse movements in the general level of interest rates, such
transactions could also preclude the opportunity to benefit from
favorable movements in the level of interest rates. Due to the
imperfect correlation between movements in the prices of futures
contracts and movements in the prices of the related securities being
hedged, the price of a futures contract may move more than or less
than the price of the securities being hedged. Options on futures
contracts are generally subject to the same risks applicable to all
option transactions. In addition, a Fund's ability to use this
technique will depend in part on the development and maintenance of a
liquid secondary market for such options. For a discussion of the
inherent risks involved with futures contracts and options thereon,
see "Risks Relating to Transactions in Futures Contracts and Related
Options" below.
The Funds' policies permitting the purchase and sale of futures
contracts and certain related put or call options only for hedging
purposes may not be changed without the approval of shareholders
holding a majority of the applicable Fund's outstanding voting
securities. The Board of Trustees may authorize procedures, including
numerical limitations, with regard to such transactions in furtherance
of a Fund's investment objectives. Such procedures are not deemed to
be fundamental and may be changed by the Board of Trustees without the
vote of the Fund's shareholders.
The U.S. Government Fund is also authorized to, but presently
does not intend to, engage in certain investment techniques involving
the sale of covered call and secured put options for the purpose of
generating additional income. The Fund will not engage in such
transactions without first having given shareholders at least 60 days'
written notice.
RISKS RELATING TO TRANSACTIONS IN FUTURES CONTRACTS AND RELATED
OPTIONS. Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a market for such futures.
Although the Funds intend to purchase or sell futures contracts only
on exchanges or boards of trade where there appears to be an active
market, there is no assurance that a liquid market on an exchange or
board of trade will exist for any particular contract or at any
particular time. In the event a liquid market does not exist, it may
not be possible to close a
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<PAGE> 194
futures position, and in the event of adverse price movements, an
affected Fund would continue to be required to make daily cash
payments of maintenance margin. In addition, limitations imposed by
an exchange or board of trade on which futures contracts are traded
may compel or prevent a Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of
a liquid market in futures contracts might cause a Fund to make or
take delivery of the underlying securities at a time when it may be
disadvantageous to do so. The purchase of put options on futures
contracts involves less potential dollar risk to the Fund than an
investment of equal amount in futures contracts, since the premium is
the maximum amount of risk the purchaser of the option assumes. The
entire amount of the premium paid for an option can be lost by the
purchaser, but no more than that amount.
SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS ON U.S. GOVERNMENT
SECURITIES
Treasury Bonds and Notes. Because trading interest in options
written on Treasury bonds and notes tends to center on the most
recently auctioned issues, the Exchanges will not continue
indefinitely to introduce options with new expirations to replace
expiring options on particular issues. Instead, the expirations
introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition
of a limited number of new expirations as the original ones expire.
Options trading on each issue of bonds or notes will thus be phased
out as new options are listed on more recent issues, and options
representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
Treasury Bills. Because the deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in
advance for their potential exercise settlement obligations by
acquiring and holding the underlying security. However, if the U.S.
Government Fund holds a long position in Treasury bills with a
principal amount corresponding to the principal amount of the
securities deliverable upon exercise of the option, it may be hedged
from a risk standpoint. In addition, the U.S. Government Fund will
maintain Treasury bills maturing no later than those which would be
deliverable in the event of an assignment of an exercise notice in a
segregated account with its Custodian so that it will be treated as
being covered for margin purposes.
GNMA Certificates. The following special considerations will be
applicable to the writing of call options on GNMA Certificates by U.S.
Government Fund when and if trading of options thereon commences.
Since the remaining principal balance of GNMA Certificates declines
each month as a result of mortgage payments, the U.S. Government Fund
as a writer of a GNMA call holding GNMA Certificates as "cover" to
satisfy its delivery obligation in the event of exercise may find that
the GNMA Certificates it holds no longer have a sufficient remaining
principal balance for this purpose. Should this occur, the Fund will
purchase additional GNMA Certificates from the same pool (if
obtainable) or replacement GNMA Certificates in the cash market in
order to maintain its cover. If for any reason, the Fund were no
longer covered, the Fund will either enter into a closing purchase
transaction or replace such Certificate with a Certificate which
represents cover. When the Fund closes its position or replaces such
Certificate, it may realize an unanticipated loss and incur
transaction costs.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment
restrictions. The fundamental restrictions set forth below as well as
the Funds' investment objectives and fundamental policies and
restrictions set forth in the Prospectuses may not be changed without
approval of a majority of
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<PAGE> 195
the applicable Fund's outstanding voting securities. Under the
Investment Company Act of 1940, as amended (the "1940 Act"), and as
used in the Prospectuses and this SAI, a "majority of the outstanding
voting securities" requires the approval of the lesser of (1) the
holders of 67% or more of the shares of a Fund represented at a
meeting if the holders of more than 50% of the outstanding shares of
the Fund are present in person or by proxy or (2) the holders of more
than 50% of the outstanding shares of the Fund.
Under these restrictions, a Fund may not:
1. Make short sales of securities or purchase securities on
margin, except for such short-term loans as are necessary
for the clearance of purchases of portfolio securities.
2. Engage in the underwriting of securities except insofar as
the Fund may be deemed an underwriter under the Securities
Act of 1933 in disposing of a portfolio security or purchase
securities which are not readily marketable.
3. Purchase or sell real estate or interests therein, including
limited partnership interests although the Fund may purchase
securities of issuers which engage in real estate operations
and securities which are secured by real estate or interests
therein.
4. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except
that the Trust may invest in securities of companies which
invest in or sponsor such programs.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets.
6. Invest for the purpose of exercising control or management
of another company.
7. Invest in securities of any company if, to the knowledge of
the Trust, any officer or director of the Trust or its
Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and all such officers and
directors own in the aggregate more than 5% of the
outstanding securities of such company.
8. Issue senior securities, as defined in the Act, except that
the Fund may enter into repurchase agreements, lend
portfolio securities, and borrow as described below.
9. Make loans of money or securities, except by (a) the
purchase of fixed income obligations; (b) investing in
repurchase agreements; or (c) lending its portfolio
securities. See "Investments, Techniques and Risk Factors"
in the Prospectus.
10. Write or purchase put or call options or purchase or sell
commodities or commodity futures contracts except the Fund
may purchase such options on debt securities and purchase or
sell financial futures contracts and purchase options
thereon.
11. Invest in warrants or rights except where acquired in units
or attached to other securities.
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<PAGE> 196
12. Enter into a repurchase agreement maturing in more than
seven days, if as a result such repurchase agreements
together with restricted securities and securities for which
there are no readily available market quotations would
constitute more than 10% of the Fund's total assets, or
enter into reverse repurchase agreements exceeding in the
aggregate one-third of the market value of the Fund's total
assets less liabilities other than obligations created by
reverse repurchase agreements.
13. Invest more than 5% of the market or other fair value of its
assets in the securities of any one issuer and shall not
purchase more than 10% of the voting securities or more than
10% of any class of securities of any one issuer. This
restriction does not apply to U.S. Government securities as
defined in the Prospectuses.
14. Borrow in excess of 15% of the market or fair value of its
total assets or pledge its assets to an extent greater than
10% of the market or other fair value of its total assets.
Borrowings must be from banks and undertaken only as a
temporary measure for extraordinary or emergency purposes.
Collateral arrangements maintained in connection with the
writing of covered call options or margin deposits in
connection with the sale of futures contracts and related
options are not deemed to be a pledge or other encumbrance.
The restriction on borrowing does not prohibit the use of
reverse repurchase agreements in an amount (including any
borrowings) not to exceed 33 1/3% of the Fund's net assets.
In addition, U.S. Government Fund may invest only in those
investments which a federally chartered savings and loan association
by law or regulation may, without limitation as to percentage of
assets, invest in, sell, redeem, hold or otherwise deal with. The
Intermediate Government Trust may not invest more than 25% of its
total assets in the securities of issuers in any single industry,
provided that there shall be no such limitation on the purchase of
obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
Notwithstanding any investment restriction to the contrary, the
Funds may, in connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/ Directors, purchase
securities of other investment companies within the John Hancock Group
of Funds provided that, as a result, (i) no more than 10% of the
Fund's assets would be invested in securities of all other investment
companies, (ii) such purchase would not result in more than 3% of the
total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets
would be invested in any one such investment company.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Funds is managed by the Trust's Trustees who
elect officers who are responsible for the day-to-day operations of
each Fund and who execute policies formulated by the Trustees.
Several of the officers and Trustees of the Trust are also officers
and directors of the Adviser or officers and directors of John Hancock
Funds.
Set forth below is the principal occupation or employment of the
Trustees and officers of the Trust during the past five years.
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<PAGE> 197
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Trustee, Chairman and Chief Executive
101 Huntington Avenue Chairman and Officer, the Adviser and The
Boston, MA 02199 Chief Executive Berkeley Financial Group
Officer(1)(2) ("The Berkeley Group");
Chairman, NM Capital
Management, Inc. ("NM
Capital"); John Hancock
Advisers International Limited
("Advisers International");
John Hancock Funds, Inc.;
John Hancock Investor
Services Corporation
("Investor Services"); and
Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Inc., Investor
Services and SAMCorp are
collectively referred to as the
"Affiliated Companies");
Chairman, First Signature
Bank & Trust; Director, John
Hancock Freedom Securities
Corporation, John Hancock
Capital Corporation, New
England/Canada Business
Council; Member, Investment
Company Institute Board of
Governors; Trustee, Museum
of Science; President, the
Adviser (until July 1992);
Trustee or Director of other
investment companies
managed by the Adviser; and
Chairman, John Hancock
Distributors, Inc. (until April,
1994).
James F. Carlin Trustee Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc. (insurance);
Natick, MA 01760 Director, Arbella Mutual
Insurance Company
(insurance), Consolidated
Group Trust (group health
plan), Carlin Insurance
</TABLE>
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<PAGE> 198
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C>
Agency, Inc. and West
Insurance Agency, Inc.;
Receiver, the City of Chelsea
(until August 1992); and
Trustee or Director of other
investment companies
managed by the Adviser.
William H. Cunningham Trustee Chancellor, University of
601 Colorado Street Texas System and former
O'Henry Hall President of the University of
Austin, TX 78701 Texas, Austin, Texas; Regents
Chair in Higher Education
Leadership; James L. Bayless
Chair for Free Enterprise;
Professor of Marketing and
Dean College of Business
Administration/Graduate
School of Business
(1983-1985); Centennial Chair
in Business Education
Leadership, 1983-1985;
Director, LaQuinta Motor Inns,
Inc. (hotel management
company); Director,
Jefferson-Pilot Corporation
(diversified life insurance
company); Director,
Freeport-McMoran Inc. (oil
and gas company); Director,
Barton Creek Properties, Inc.
(1988-1990) (real estate
development) and LBJ
Foundation Board (education
foundation); and Advisory
Director, Texas Commerce
Bank - Austin.
Charles L. Ladner Trustee(3) Director, Energy North, Inc.
UGI Corporation (public utility holding
460 North Gulph Road company); Senior Vice
King of Prussia, PA 19406 President, Finance UGI Corp.
(public utility holding
company) (until 1992); and
Trustee or Director of other
investment companies
managed by the Adviser.
</TABLE>
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<PAGE> 199
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C>
Leo E. Linbeck, Jr. Trustee Chairman, President, Chief
3810 W. Alabama Executive Officer and
Houston, TX 77027 Director, Linbeck Corporation
(a holding company engaged
in various phases of the
construction industry and
warehousing interests);
Director and Chairman,
Federal Reserve Bank of
Dallas; Chairman of the Board
and Chief Executive Officer,
Linbeck Construction
Corporation; Director,
Panhandle Eastern Corporation
(a diversified energy
company); Director, Daniel
Industries, Inc. (manufacturer
of gas measuring products and
energy related equipment);
Director, GeoQuest
International, Inc. (a
geophysical consulting firm);
and Director, Greater Houston
Partnership.
Patricia P. McCarter Trustee(3) Director and Secretary, the
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacturer); and Trustee or
Malvern, PA 19355 Director of other investment
companies managed by the
Adviser.
Steven R. Pruchansky Trustee(1)(3) Director and Treasurer, Mast
360 Horse Creek Drive, #208 Holdings, Inc.; Director,
Naples, FL 33942 First Signature Bank & Trust
Company (until August 1991);
General Partner, Mast Realty
Trust; President, Maxwell
Building Corp. (until 1991);
and Trustee or Director of
other investment companies
managed by the Adviser.
Norman H. Smith Trustee(3) Lieutenant General, USMC,
Rt. 1, Box 249 E Deputy Chief of Staff for
Linden, VA 22642 Manpower and Reserve
Affairs, Headquarters Marine
Corps; Commanding General
III Marine Expeditionary
Force/3rd Marine Division
</TABLE>
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<PAGE> 200
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C>
(retired 1991); and Trustee or
Director of other investment
companies managed by the
Adviser.
John P. Toolan Trustee(3) Director, The Smith Barney
13 Chadwell Place Muni Bond Funds, The Smith
Morristown, NJ 07960 Barney Tax-Free Money Fund,
Inc., Vantage Money Market
Funds (mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment
company) and Smith Barney
Trust Company of Florida;
Chairman, Smith Barney Trust
Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management
Company and Smith, Barney
Advisers, Inc. (investment
advisers) (retired 1991); and
Senior Executive Vice
President, Director and
member of the Executive
Committee, Smith Barney,
Harris Upham & Co.,
Incorporated (investment
bankers) (until 1991); and
Trustee or Director of other
investment companies
managed by the Adviser.
Robert G. Freedman* Vice Chairman President and Chief
101 Huntington Avenue and Chief Investment Officer, the
Boston, MA 02199 Investment Adviser.
Officer(2)
Anne C. Hodsdon* President(2) Executive Vice President, the
101 Huntington Avenue Adviser.
Boston, MA 02199
James B. Little* Senior Vice Senior Vice President, the
101 Huntington Avenue President and Adviser.
Boston, MA 02199 Chief Financial
Officer
Thomas H. Drohan* Senior Vice Senior Vice President and
101 Huntington Avenue President and Secretary, the Adviser.
Boston, MA 02199 Secretary
</TABLE>
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<PAGE> 201
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
---------------- -------------- -----------------------
<S> <C> <C>
Michael P. DiCarlo* Senior Vice Senior Vice President, the
101 Huntington Avenue President(2) Adviser.
Boston, MA 02199
Edgar Larsen* Senior Vice Senior Vice President, the
101 Huntington Avenue President Adviser.
Boston, MA 02199
B.J. Willingham* Senior Vice Senior Vice President, the
101 Huntington Avenue President Adviser. Formerly, Director
Boston, MA 02199 and Chief Investment Officer
of Transamerica Fund
Management Company.
James J. Stokowski* Vice President Vice President, the Adviser.
101 Huntington Avenue and Treasurer
Boston, MA 02199
Susan S. Newton* Vice President Vice President and Assistant
101 Huntington Avenue and Compliance Secretary, the Adviser.
Boston, MA 02199 Officer
John A. Morin* Vice President. Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
<FN>
__________________
* An "interested person" of the Fund, as such term is defined in the 1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust, the
Executive Committee may generally exercise most of the powers of the Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) A Member of the Audit, Administration and Compensation Committees.
</TABLE>
All of the officers listed are officers or employees of the
Adviser or affiliated companies. Some of the Trustees and officers
may also be officers and/or directors and/or trustees of one or more
of the other funds for which the Adviser serves as investment adviser.
As of April 28, 1995, there were 980,071 shares of the
Intermediate Government Fund and 2,298,041 shares of U.S. Government
Trust outstanding and officers and Trustees of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust
and of each of the Funds. At such date, the following shareholders
held, as record owner, 5% or more of the shares of the respective
Funds:
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<PAGE> 202
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
INTERMEDIATE GOVERNMENT TRUST: OF OUTSTANDING SHARES
------------------------------ ---------------------
<S> <C>
Merrill Lynch Pierce Fenner & Smith 17.3%
Trade House Account - Book Entry
Team B - 3rd Floor
4800 Deer Lake Drive East
Jacksonville, FL 32246
U.S. Government Trust:
----------------------
Merchants & Marine Bank 13.24%
Attn: Mike Dickson
P. O. Box 279
Pascagoula, MS 39567-0729
Merrill Lynch Pierce Fenner & Smith Inc. 10.18%
Trade House Account - Book Entry
Team B - 3rd Floor
4800 Deer Lake Drive East
Jacksonville, FL 32246
River Production Co. Inc. 8.77%
P. O. Box 909
Columbia, MS 39429-0909
Northern Trust Co. Ttee. 6.52%
FBO Adventist Health System/West
Attn: Tiffany Snyder
P. O. Box 92956
A/C 822-85446/4-866770
Chicago, IL 60675-29
First Diboll Company 5.97%
P. O. Box 152020
Lufkin, TX 75915-2020
Municipal Workers Compensation Fund Inc. 5.84%
P. O. Box 1270
Montgomery, AL 36102
Baptist General Convention of Texas 5.63%
333 N. Washington
Dallas, TX 75246-1798
Home Federal Savings Bank 5.41%
Attn: Helen Groves Coleman
9108 Woodward Avenue
Detroit, MI 48202-1699
</TABLE>
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<PAGE> 203
As of December 22, 1994, the Trustees have established an
Advisory Board which acts to facilitate a smooth transition of
management over a two-year period (between Transamerica Fund
Management Company ("TFMC"), the prior investment adviser, and the
Adviser). The members of the Advisory Board are distinct from the
Board of Trustees, do not serve the Fund in any other capacity and are
persons who have no power to determine what securities are purchased
or sold and behalf of the Fund. Each member of the Advisory Board may
be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199.
Members of the Advisory Board and their respective principal
occupations during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management
services); former Chairman of the Board, Mosher Steel Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from
Texas; co-founder, Houston Parents' League; former board member
of various civic and cultural organizations in Houston, including
the Houston Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen
is presently active in various civic and cultural activities in
the Washington, D.C. area, including membership on the Area Board
for The March of Dimes and is a National Trustee for the Botanic
Gardens of Washington, D. C.
Thomas R. Powers, Formerly Chairman of the Board, President and Chief
Executive Officer, TFMC; Director, West Central Advisory Board,
Texas Commerce Bank; Trustee, Memorial Hospital System; Chairman
of the Board of Regents of Baylor University; Member, Board of
Governors, National Association of Securities Dealers, Inc.;
Formerly, Chairman, Investment Company Institute; formerly,
President, Houston Chapter of Financial Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company;
Director, Houston Industries and Houston Lighting and Power
Company; Director, TransAmerican Companies (natural gas producer
and transportation); Member, Board of Managers, Harris County
Hospital District; Advisory Director, Commercial State Bank, El
Campo; Advisory Director, First National Bank of Bryan; Advisory
Director, Sterling Bancshares; Former Director and Vice Chairman,
Texas Commerce Bancshares; and Vice Chairman, Texas Commerce
Bank.
COMPENSATION OF THE BOARD OF TRUSTEES AND ADVISORY BOARD. Each
Trustee who is not an "interested person," as such term is defined in
the 1940 Act ("Independent Trustee"), receives an annual retainer of
$44,000, a meeting fee of $4,000 for each of the four regularly
scheduled meetings held during the year and a fee of $25 per day or
actual travel expenses, whichever is greater. This compensation is
apportioned among the John Hancock funds, including the U.S.
Government Fund and Intermediate Government Fund, on which such
Trustees serve based on the net asset value of such funds. Advisory
Board Members receive from the John Hancock funds an annual retainer
of $40,000 and a meeting fee of $7,000 for each of the two regularly
scheduled meetings to be held in 1995 and the one in 1996. For the
fiscal year ended March 31, 1994, the Trust paid Trustees' fees in the
aggregate of $26,337 to all the Trustees then serving as such.
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<PAGE> 204
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, the Funds receive their
investment advice from the Adviser. Investors should refer to the
Prospectuses for a description of certain information concerning the
investment management contracts. Each of the Trustees and principal
officers affiliated with the Trust who is also an affiliated person of
the Adviser is named above, together with the capacity in which such
person is affiliated with the Trust or the Adviser.
The Adviser, located at 101 Huntington Avenue, Boston,
Massachusetts 02199-7603, was organized in 1968 and currently has over
$13 billion in assets under management in its capacity as investment
adviser to the Funds and the other mutual funds and publicly traded
investment companies in the John Hancock group of funds having a
combined total of over 800,000 shareholders. The Adviser is a
wholly-owned subsidiary of The Berkeley Financial Group, which is in
turn a wholly-owned subsidiary of John Hancock Subsidiaries, Inc.,
which is in turn a wholly-owned subsidiary of the Life Company, one of
the most recognized and respected financial institutions in the
nation. With total assets under management of over $80 billion, the
Life Company is one of the ten largest life insurance companies in the
United States, and carries Standard & Poor's and A.M. Best's highest
ratings. Founded in 1862, the Life Company has been serving clients
for over 130 years.
As described in the Prospectus under the caption "Organization
and Management of the Fund," the Trust, on behalf of each Fund, has
entered into an investment management contract with the Adviser.
Under the investment management contracts, the Adviser provides the
Funds with (i) a continuous investment program, consistent with each
Fund's stated investment objective and policies, (ii) supervision of
all aspects of the Funds' operations except those that are delegated
to a custodian, transfer agent or other agent and (iii) such
executive, administrative and clerical personnel, officers and
equipment as are necessary for the conduct of their business. The
Adviser is responsible for the day-to-day management of each Fund's
portfolio assets.
No person other than the Adviser and its directors and employees
regularly furnishes advice to the Funds with respect to the
desirability of the Funds investing in, purchasing or selling
securities. The Adviser may from time to time receive statistical or
other similar factual information, and information regarding general
economic factors and trends, from the Life Company and its affiliates.
Under the terms of the investment management contracts with the
Funds, the Adviser provides the Trust with office space, equipment and
supplies and other facilities and personnel required for the business
of the Trust. The Adviser pays the compensation of all officers and
employees of the Trust and pays the expenses of clerical services
relating to the administration of each Fund. All expenses which are
not specifically paid by the Adviser and which are incurred in the
operation of the Trust including, but not limited to, (i) the fees of
the Independent Trustees, (ii) the fees of the members of the Trust's
Advisory Board (described above) and (iii) the continuous public
offering of the shares of the Funds are borne by the Funds and/or the
other series of the Trust. Subject to the conditions set forth in a
private letter ruling that the Funds have received from the Internal
Revenue Service relating to their multiple-class structure, class
expenses properly allocable to any Class A or Class B shares will be
borne exclusively by such class of shares.
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The investment management contract with the Trust, on behalf of
Intermediate Government Fund, provides that the Trust shall pay the
Adviser for its services, out of the assets of Intermediate Government
Fund, a monthly fee, computed at the annual rate of 0.50% of the
average daily net assets of Intermediate Government Fund. Prior to
April 1, 1993, investment advisory fees paid by the Intermediate
Government Fund amounted to 0.45% of its average daily net assets. On
February 16, 1993, the Trust's Board of Trustees, including all of the
Independent Trustees, approved an amendment to the investment
management contract whereby the fee payable to the Fund's prior
investment adviser under the investment management contract be
increased to 0.50% of the average daily net assets of Intermediate
Government Fund, and at a meeting on March 29, 1993, shareholders of
Intermediate Government Fund approved the amended investment
management contract.
<TABLE>
The investment management contract with the Trust, on behalf of
U.S. Government Fund, provides that the Trust shall pay the Adviser
for its services, out of the assets of U.S. Government Fund, a monthly
fee, computed at the following rates:
<CAPTION>
AVERAGE DAILY NET ASSETS OF FEE
JOHN HANCOCK U.S. GOVERNMENT TRUST (ANNUAL RATE)
---------------------------------- -------------
<S> <C>
On the first $200 million............ 0.650%
On the next $300 million............. 0.625%
On the excess over $500 million...... 0.600%
</TABLE>
The Adviser may voluntarily and temporarily reduce its advisory
fee or make other arrangements to limit each Fund's expenses to a
specified percentage of its average daily net assets. The Adviser
retains the right to re-impose the advisory fee and recover any other
payments to the extent that, at the end of any fiscal year, such
Fund's annual expenses fall below this limit.
In the event normal operating expenses of a Fund, exclusive of
certain expenses prescribed by state law, are in excess of any state
limit where that Fund is registered to sell shares of beneficial
interest, the fee payable to the Adviser will be reduced to the extent
of such excess and the Adviser will make any additional arrangements
necessary to eliminate any remaining excess expenses. Currently, the
most restrictive limit applicable to each Fund is 2.5% of the first
$30,000,000 of the Fund's average daily net asset value, 2% of the
next $70,000,000 and 1.5% of the remaining average daily net asset
value.
Pursuant to the investment management contracts, the Adviser is
not liable to the Funds or their shareholders for any error of
judgment or mistake of law or for any loss suffered by a Fund in
connection with the matters to which their respective contracts
relate, except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of its
duties or from its reckless disregard of the obligations and duties
under the applicable contract.
The term of each investment management contract expires on
December 22, 1996 and each contract will continue in effect from year
to year thereafter if approved annually by a vote of a majority of the
Independent Trustees of the Trust, on behalf of the affected Fund,
cast in person at a meeting called for the purpose of voting on such
approval, and by either a majority of the Trustees or the holders of a
majority of the affected Fund's outstanding voting securities. A
management contract may, on 60 days' written notice, be terminated at
any time without the payment of any penalty by the affected Fund by
vote of a majority of the outstanding voting
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securities of the affected Fund, by the Trustees or by the Adviser. A
management contract terminates automatically in the event of its
assignment.
Securities held by the Funds may also be held by other funds or
investment advisory clients for which the Adviser or its affiliates
provide investment advice. Because of different investment objectives
or other factors, a particular security may be bought for one or more
funds or clients when one or more are selling the same security. If
opportunities for the purchase or sale of securities by the Adviser or
for other funds or clients for which the Adviser renders investment
advice arise for consideration at or about the same time, transactions
in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of
them. To the extent that transactions on behalf of more than one
client of the Adviser or its affiliates may increase the demand for
securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
Under the investment management contracts, the Funds may use the
name "John Hancock" or any name derived from or similar to it only as
long as the applicable investment management contract or any
extension, renewal or amendment thereof remains in effect. If a
Fund's investment management contract is no longer in effect, that
Fund (to the extent that it lawfully can) will cease to use such name
or any other name indicating that it is advised by or otherwise
connected with the Adviser. In addition, the Adviser or the Life
Company may grant the non- exclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity,
including but not limited to any investment company of which the Life
Company or any subsidiary or affiliate thereof or any successor to the
business of any subsidiary or affiliate thereof shall be the
investment adviser.
For the fiscal years ended March 31, 1992, 1993 and 1994,
advisory fees payable by Intermediate Government Fund to TFMC amounted
to $5,904, $6,588 and $24,447, respectively; however, a portion of
such fees was not imposed pursuant to the voluntary fee and expense
limitation arrangements then in effect (see "Financial Highlights" in
the Prospectus). For the fiscal years ended March 31, 1992, 1993 and
1994, advisory fees payable by U.S. Government Fund to TFMC amounted
to $704,437, $128,579 and $143,566, respectively.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust, on behalf of the
Funds, was a party to administrative services agreements with TFMC
(the "Services Agreements"), pursuant to which TFMC performed
bookkeeping and accounting services and functions, including preparing
and maintaining various accounting books, records and other documents
and keeping such general ledgers and portfolio accounts as are
reasonably necessary for the operation of the Funds. Other
administrative services included communications in response to
shareholder inquiries and certain printing expenses of various
financial reports. In addition, such staff and office space,
facilities and equipment was provided as necessary to provide
administrative services to the Funds. The Services Agreements were
amended in connection with the appointment of the Adviser as adviser
to the Funds to permit services under the Agreements to be provided to
the Funds by the Adviser and its affiliates. The Services Agreements
were terminated during the current fiscal year.
For the fiscal years ended March 31, 1992, 1993 and 1994, the
amounts paid by Intermediate Government Fund pursuant to its Services
Agreement (before expense reimbursement) were $21,064, $21,062 and
$28,021, respectively. Of such amounts, $17,977, $17,952 and $24,751,
respectively, were paid to TFMC and $3,087, $3,110 and $3,270,
respectively, were paid for certain data processing services.
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For the fiscal years ended March 31, 1992, 1993 and 1994, U.S.
Government Fund reimbursed TFMC $14,972, $47,572 and $38,604,
respectively, for such services. Of such amounts $74,568, $37,082 and
$28,654, respectively, were paid to TFMC and $17,404, $10,490 and
$9,950, respectively, were paid for certain data processing and
pricing information services.
DISTRIBUTION CONTRACTS
DISTRIBUTION CONTRACTS. As discussed in the Prospectuses, each
Fund's shares are sold on a continuous basis at the public offering
price. John Hancock Funds, a wholly-owned subsidiary of the Adviser,
has the exclusive right, pursuant to the Distribution Contracts dated
December 22, 1994 (the "Distribution Contracts"), to purchase shares
from the Funds at net asset value for resale to the public or to
broker-dealers at the public offering price. Upon notice to all
broker-dealers ("Selling Brokers") with whom it has sales agreements,
John Hancock Funds may allow such Selling Brokers up to the full
applicable sales charge during periods specified in such notice.
During these periods, such Selling Brokers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The Distribution Contracts were initially adopted by the
affirmative vote of the Trust's Board of Trustees including the vote a
majority of the Independent Trustees cast in person at a meeting
called for such purpose. Each Distribution Contract shall continue in
effect until December 22, 1995 and from year to year thereafter if
approved by either the vote of the relevant Fund's shareholders or the
Board of Trustees, including the vote of a majority of the Independent
Trustees, cast in person at a meeting called for such purpose. A
Distribution Contract may be terminated at any time, without penalty,
by either party upon sixty (60) days' written notice or by a vote of a
majority of the outstanding voting securities of the relevant Fund and
terminates automatically in the case of an assignment by John Hancock
Funds.
Total underwriting commissions for sales of the Class A shares of
Intermediate Government Fund and U.S. Government Fund for the fiscal
years ended March 31, 1992 were $8,798 and $12,225; for 1993 were
$5,066 and $2,267; and for 1994 were $0 and $172, respectively. Of
the amounts, for sales of Class A shares of Intermediate Government
Fund, $1,014, $215 and $0 was retained by Transamerica Fund
Distributors, Inc., the Funds' former distributor, for the fiscal
years ended March 31, 1992, 1993 and 1994, respectively, and the
remainders were reallowed to dealers. For sales of Class A shares of
U.S. Government Fund, $1,226, $104 and $0 was retained by Transamerica
Fund Distributors, Inc. for the fiscal years ended March 31, 1992,
1993 and 1994, respectively, and the remainders were reallowed to
dealers.
DISTRIBUTION PLAN. The Board of Trustees, including the
Independent Trustees of the Trust, approved new distribution plans for
each Fund pursuant to Rule 12b-1 under the 1940 Act for Class A
shares ("Class A Plans") and Class B shares ("Class B Plans"). Such
Plans were approved by a majority of the outstanding shares of each
respective class on December 16, 1994 and became effective on December
22, 1994.
Under the Class A Plans, the distribution or service fee will not
exceed an annual rate of 0.25% of the average daily net asset value of
the Class A shares of the Funds (determined in accordance with the
appropriate Fund's Prospectus as from time to time in effect). Any
expenses under a Fund's Class A Plan not reimbursed within 12 months
of being presented to such Fund for
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repayment are forfeited and not carried over to future years. Under
the Class B Plans, the distribution or service fee to be paid by the
Funds will not exceed an annual rate of 1.00% of the average daily net
assets of the Class B shares of the Funds (determined in accordance
with the appropriate Fund's prospectus as from time to time in
effect); provided that the portion of such fee used to cover Service
Expenses (described below) shall not exceed an annual rate of 0.25% of
the average daily net asset value of the Class B shares of the
respective Fund. Under the Class B Plans, the fee covers the
Distribution and Service Expenses (described below) and interest
expenses on unreimbursed distribution expenses. In accordance with
generally accepted accounting principles, the Funds do not treat
unreimbursed distribution expenses as a liability of the Fund and do
not reduce the current net assets of Class B shares by such amount,
although the amount may be payable in the future.
Under the Plans, expenditures shall be calculated and accrued
daily and paid monthly or at such other intervals as the Trustees
shall determine. The fee may be spent by John Hancock Funds on
Distribution Expenses or Service Expenses. "Distribution Expenses"
include any activities or expenses primarily intended to result in the
sale of shares of the relevant class of the Funds, including, but not
limited to: (i) initial and ongoing sales compensation payable out of
such fee as such compensation is received by John Hancock Funds or by
Selling Brokers, (ii) direct out-of-pocket expenses incurred in
connection with the distribution of shares, including expenses related
to printing of prospectuses and reports; (iii) preparation, printing
and distribution of sales literature and advertising material; (iv) an
allocation of overhead and other branch office expenses of John
Hancock Funds related to the distribution of Fund Shares (v)
distribution expenses that were incurred by a Fund's former
distributor and not recovered through payments under the Class A or
Class B former plans or through receipt of contingent deferred sales
charges; and (vi) in the event that any other investment company (the
"Acquired Fund") sells all or substantially all of its assets to
merges with or otherwise engages in a combination with a Fund,
distribution expenses originally incurred in connection with the
distribution of the Acquired Fund's shares. Service Expenses under
the Plans include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of John
Hancock Funds) and others who furnish personal and shareholder account
maintenance services to shareholders of the relevant class of the
Fund.
During the fiscal year ended March 31, 1994, total payments made
under the Class A Plan by U.S. Government Fund to TFMC amounted to
$43,954, and, of such amount, (1) $15,892 represented payments for
distribution and/or administrative services provided by dealers, (2)
$5,935 represented payments for services provided to new shareholders
by John Hancock Funds, (3) $6,407 represented payments for the cost of
printing and distributing Prospectuses and Statements of Additional
Information and various Fund reports to investors, (4) $12,670
represented payments for various sales literature and (5) $3,050
represented payments for advertising. There were no payments made
under the Class A Plan by Intermediate Government Trust during the
fiscal year ended March 31, 1994.
The Board of Trustees authorized two classes of shares of
beneficial interest for each Fund on July 19, 1994. Accordingly, no
payments were made under the Class B Plans during the fiscal year
ended March 31, 1994.
Each of the Plans provides that it will continue in effect only
as long as its continuance is approved at least annually by a majority
of both the Trustees and the Independent Trustees. Each of the Plans
provides that it may be terminated (a) at any time by vote of a
majority of the Trustees, a majority of the Independent Trustees, or a
majority of the respective Class'
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outstanding voting securities or (b) by John Hancock Funds on 60 days'
notice in writing to the affected Fund. Each of the Plans further
provides that it may not be amended to increase the maximum amount of
the fees for the services described therein without the approval of a
majority of the outstanding shares of the class of the affected Fund
which has voting rights with respect to the Plan. Each of the Plans
provides that no material amendment to the Plan will, in any event, be
effective unless it is approved by a majority vote of the Trustees and
the Independent Trustees of the Trust. The holders of Class A shares
and Class B shares have exclusive voting rights with respect to the
Plan applicable to their respective class of shares of the Fund in
which they are shareholders. In adopting the Plans, the Board of
Trustees has determined that, in its judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable
class of shares of the Funds.
Information regarding the services rendered under the Plans and
the Distribution Contracts and the amounts paid therefor by the
respective Class of the Funds are provided to, and reviewed by, the
Board of Trustees on a quarterly basis. In its quarterly review, the
Board of Trustees considers the continued appropriateness of the Plans
and the Distribution Contracts and the level of compensation provided
therein.
When the Trust seeks an Independent Trustee to fill a vacancy or
as a nominee for election by shareholders, the selection or nomination
of the Independent Trustee is, under resolutions adopted by the
Trustees contemporaneously with their adoption of the Plans, committed
to the discretion of the Committee on Administration of the Trustees.
The members of the Committee on Administration are all Independent
Trustees and identified in this Statement of Additional Information
under the heading "Those Responsible for Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a
Fund's shares, the following procedures are utilized wherever
applicable.
Debt investment securities are valued on the basis of valuations
furnished by a principal market maker or a pricing service, both of
which generally utilize electronic data processing techniques to
determine valuations for normal institutional size trading units of
debt securities without exclusive reliance upon quoted prices.
Short-term debt investments which have a remaining maturity of 60
days or less are generally valued at amortized cost, which the
Trustees have determined approximates market value. If market
quotations are not readily available or if in the opinion of the
Adviser any quotation or price is not representative of true market
value, the fair value of the security may be determined in good faith
in accordance with procedures approved by the Trustees.
A Fund will not price its securities on the following national
holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
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INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of
the Funds are described in each Fund's Class A and Class B Prospectus.
Methods of obtaining reduced sales charges referred to generally in
the Prospectuses are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares, the
investor is entitled to cumulate current purchases with the greater of
the current value (at offering price) of the Class A shares of such
Fund, or if Investor Services is notified by the investor's dealer or
the investor at the time of the purchase, the cost of the Class A
shares owned.
COMBINED PURCHASES. In calculating the sales charge applicable
to purchases of Class A shares made at one time, the purchases will be
combined if made by (a) an individual, his or her spouse and their
children under the age of 21 purchasing securities for his or her own
account, (b) a trustee or other fiduciary purchasing for a single
trust, estate or fiduciary account and (c) certain groups of four or
more individuals making use of salary deductions or similar group
methods of payment whose funds are combined for the purchase of mutual
fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from
Investor Services or a Selling Broker's representative.
WITHOUT SALES CHARGE. As described in the Prospectuses, Class A
shares of the Funds may be sold without a sales charge to certain
persons described in the Prospectuses.
ACCUMULATION PRIVILEGE. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the
benefit of the reduced sales charge by taking into account not only
the amount then being invested but also the purchase price or value of
the Class A shares already held by such person.
COMBINATION PRIVILEGE. Reduced sales charges (according to the
schedule set forth in each Fund's Class A and Class B Prospectus) also
are available to an investor based on the aggregate amount of his
concurrent and prior investments in Class A shares of such Fund and
shares of all other John Hancock funds which carry a sales charge.
LETTER OF INTENTION. The reduced sales loads are also applicable
to investments made over a specified period pursuant to a Letter of
Intention (LOI), which should be read carefully prior to its execution
by an investor. The Funds offer two options regarding the specified
period for making investments under the LOI. All investors have the
option of making their investments over a period of thirteen (13)
months. Investors who are using the Funds as a funding medium for a
qualified retirement plan, however, may opt to make the necessary
investments called for by the LOI over a forty-eight (48) month
period. These qualified retirement plans include IRAs, SEP, SARSEP,
TSA, 401(k) plans, TSA plans and 457 plans. Such an investment
(including accumulations and combinations) must aggregate $50,000 or
more invested during the specified period from the date of the LOI or
from a date within ninety (90) days prior thereto, upon written
request to Investor Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount
intended to be invested had been invested immediately. If such
aggregate amount is not actually invested, the difference in the sales
charge actually paid and the sales charge payable had the LOI not been
in effect is due from the investor. However, for the purchases
actually made within the specified period (either 13 or 48 months),
the sales charge applicable will not be higher than that which would
have been applied (including accumulations and combinations) had the
LOI been for the amount actually invested.
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The LOI authorizes Investor Services to hold in escrow sufficient
Class A shares (approximately 5% of the aggregate) to make up any
difference in sales charges on the amount intended to be invested and
the amount actually invested, until such investment is completed
within the specified period, at which time the escrow shares will be
released. If the total investment specified in the LOI is not
completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Investor Services to act as
his attorney-in-fact to redeem any escrow shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment
by an investor to purchase, or by the Funds to sell, any additional
shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value
per share without the imposition of a sales charge so that applicable
Fund will receive the full amount of the purchase payment.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are
redeemed within six years of purchase will be subject to a contingent
deferred sales charge ("CDSC") at the rates set forth in each Fund's
Class A and Class B Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal
to the lesser of the current market value or the original purchase
cost of the Class B shares being redeemed. Accordingly, no CDSC will
be imposed on increases in account value above the initial purchase
prices, including Class B shares derived from reinvestment of
dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number
of years from the time of payment for the purchase of Class B shares
until the time of redemption of such shares. Solely for purposes of
determining the number of years from the time of any payment for the
purchases of shares, all payments during a month will be aggregated
and deemed to have been made on the last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are
used in whole or in part by John Hancock Funds to defray its expenses
related to providing distribution-related services to the Funds in
connection with the sale of the Class B shares, such as the payment of
compensation to select Selling Brokers for selling Class B shares.
The combination of the CDSC and the distribution and service fees
facilitates the ability of the Funds to sell the Class B shares
without a sales charge being deducted at the time of the purchase.
See each Fund's Class A and Class B Prospectus for additional
information regarding the CDSC.
SPECIAL REDEMPTIONS
Although it would not normally do so, each Fund has the right to
pay the redemption price of shares of the Fund in whole or in part in
portfolio securities as prescribed the Trustees. When the shareholder
sells portfolio securities received in this fashion, he would incur a
brokerage charge. Any such securities would be valued for the
purposes of making such payment at the same value as used in
determining net asset value. The Funds have elected to be governed by
Rule 18f-1 under the 1940 Act, pursuant to which each Fund is
obligated to redeem shares solely
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in cash up to the lesser of $250,000 or 1% of the net asset value of
the applicable Fund during any 90 day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the Prospectuses,
the Funds permit exchanges of shares of any class of the Funds for
shares of the same class in any other John Hancock fund offering that
class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Class A
and Class B Prospectuses, the Funds permit the establishment of a
Systematic Withdrawal Plan. Payments under this plan represent
proceeds arising from the redemption of Fund shares. Since the
redemption price of Fund shares may be more or less than the
shareholder's cost, depending upon the market value of the securities
owned by a Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of
a Systematic Withdrawal Plan concurrently with purchases of additional
Class A or Class B shares of a Fund could be disadvantageous to a
shareholder because of the initial sales charge payable on such
purchases of Class A shares and the CDSC imposed on redemptions of
Class B shares and because redemptions are taxable events. Therefore,
a shareholder should not purchase Fund shares at the same time as a
Systematic Withdrawal Plan is in effect. The Funds reserve the right
to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days' prior written notice to such shareholder, or
to discontinue the availability of such plan in the future. The
shareholder may terminate the plan at any time by giving proper notice
to Investor Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is
explained fully in each Fund's Class A and Class B Prospectus and the
Account Privileges Application. The program, as it relates to
automatic investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior
notice if any investment is not honored by the shareholder's bank.
The bank shall be under no obligation to notify the shareholder as to
the non-payment of any check.
The program may be discontinued by the shareholder either by
calling Investor Services or upon written notice to Investor Services
which is received at least five (5) business days prior to the due
date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund
shares may, within 120 days after the date of redemption, reinvest
without payment of a sales charge any part of the redemption proceeds
in shares of the same class of that Fund or another John Hancock
mutual fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested
at net asset value without paying a sales charge in Class A shares of
the Funds or in Class A shares of another John Hancock mutual fund.
If a CDSC was paid upon a redemption, a shareholder may reinvest the
proceeds from that redemption at net asset value in additional shares
of the class from which the redemption was made. The shareholder's
account will be credited with the amount of any CDSC charged upon the
prior redemption and the
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new shares will continue to be subject to the CDSC. The holding
period of the shares acquired through reinvestment will, for purposes
of computing the CDSC payable upon a subsequent redemption, include
the holding period of the redeemed shares. The Funds may modify or
terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction
for Federal income tax purposes even if the reinvestment privilege is
exercised, and any gain or loss realized by a shareholder on the
redemption or other disposition of Fund shares will be treated for tax
purposes as described under the caption "Tax Status."
DESCRIPTION OF THE TRUST'S SHARES
Ownership in the Funds is represented by transferable shares of
beneficial interest. The Declaration of Trust permits the Trustees to
create an unlimited number of series and classes of shares of the
Trust and, with respect to each series and class, to issue an
unlimited number of full or fractional shares and to divide or combine
the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests of the series.
Each share of each series or class of the Trust represents an
equal proportionate interest with each other in that series or class,
none having priority or preference over other shares of the same
series or class. The interest of investors in the various series or
classes of the Trust is separate and distinct. All consideration
received for the sales of shares of a particular series or class of
the Trust, all assets in which such consideration is invested and all
income, earnings and profits derived from such investments will be
allocated to and belong to that series or class. As such, each such
share is entitled to dividends and distributions out of the net income
belonging to that series or class as declared by the Board of
Trustees. Shares of the Trust have a par value of $0.01 per share.
The assets of each series are segregated on the Trust's books and are
charged with the liabilities of that series and with a share of the
Trust's general liabilities. The Board of Trustees determines those
assets and liabilities deemed to be general assets or liabilities of
the Trust, and these items are allocated among each series in
proportion to the relative total net assets of each series. In the
unlikely event that the liabilities allocable to a series exceed the
assets of that series, all or a portion of such liabilities may have
to be borne by the other series.
Pursuant to the Declaration of Trust, the Trustees have
established six series of shares, including the Funds, and may
authorize the creation of additional series of shares (the proceeds of
which would be invested in separate, independently managed portfolios)
and additional classes within any series (which would be used to
distinguish among the rights of different categories of shareholders,
as might be required by future regulations or other unforeseen
circumstances). The four other series of Trust are John Hancock
Adjustable U.S. Government Trust, John Hancock Investment Quality Bond
Fund, John Hancock Government Securities Trust and John Hancock
Adjustable U.S. Government Fund. As of the date of this Statement of
Additional Information, the Trustees have authorized the issuance of
two classes of shares of the Funds, designated as Class A and Class B.
Class A and Class B shares of each Fund represent an equal
proportionate interest in the aggregate net asset values attributable
to that class of such Fund. Holders of Class A shares and Class B
shares each have certain exclusive voting rights on matters relating
to the Class A Plan and the Class B Plan, respectively, of the
applicable Fund. The different classes of the Funds may bear
different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of
shares.
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Dividends paid by the Funds, if any, with respect to each class
of shares will be calculated in the same manner, at the same time and
on the same day and will be in the same amount, except that (i) the
distribution and service fees relating to Class A and Class B shares
relating to Class A and Class B shares will be borne exclusively by
that Class, (ii) Class B shares will pay higher distribution and
service fees than Class A shares and (iii) each of Class A shares and
Class B shares will bear any class expenses properly allocable to such
class of shares, subject to the conditions set forth in a private
letter ruling that the Fund has received from the Internal Revenue
Service relating to its multiple-class structure. Accordingly, the
net asset value per share may vary depending whether Class A shares or
Class B shares are purchased.
VOTING RIGHTS. Shareholders are entitled to a full vote for each
full share held. The Trustees themselves have the power to alter the
number and the terms of office of Trustees, and they may at any time
lengthen their own terms or make their terms of unlimited duration
(subject to certain removal procedures) and appoint their own
successors, provided that at all times at least a majority of the
Trustees have been elected by shareholders. The voting rights of
shareholders are not cumulative, so that holders of more than 50% of
the shares voting can, if they choose, elect all Trustees being voted
upon, while the holders of the remaining shares would be unable to
elect any Trustees. Although the Trust need not hold annual meetings
of shareholders, the Trustees may call special meetings of
shareholders for action by shareholder vote as may be required by the
1940 Act or the Declaration of Trust. Also, a shareholder's meeting
must be called if so requested in writing by the holders of record of
10% or more of the outstanding shares of the Trust. In addition, the
Trustees may be removed by the action of the holders of record of
two-thirds or more of the outstanding shares.
SHAREHOLDER LIABILITY. The Declaration of Trust provides that no
Trustee, officer, employee or agent of the Trust is liable to the
Trust or any series or to a shareholder, nor is any Trustee, officer,
employee or agent liable to any third persons in connection with the
affairs of the Trust, except as such liability may arise from his or
its own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties. It also provides that all third persons
shall look solely to the particular series' property for satisfaction
of claims arising in connection with the affairs of that series. With
the exceptions stated, the Declaration of Trust provides that a
Trustee, officer, employee or agent is entitled to be indemnified
against all liability in connection with the affairs of the Trust.
As a Massachusetts business trust, the Trust is not required to
issue share certificates. The Trust shall continue without limitation
of time subject to the provisions in the Declaration of Trust
concerning termination by action of the shareholders.
Under Massachusetts law, shareholders of a Massachusetts business
trust could, under certain circumstances, be held personally liable
for acts or obligations of the trust. However, the Trust's
Declaration of Trust contains an express disclaimer of shareholder
liability for acts, obligations and affairs of the Trust. The
Declaration of Trust also provides for indemnification out of the
Trust's assets for all losses and expenses of any shareholder held
personally liable by reason of being or having been a shareholder.
Liability is therefore limited to circumstances in which the Trust
itself would be unable to meet its obligations, and the possibility of
this occurrence is remote.
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TAX STATUS
Each Fund is treated as a separate entity for accounting and tax
purposes. Each Fund has qualified and elected to be treated as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to continue
to so qualify in the future. As such and by complying with the
applicable provisions of the Code regarding the sources of its income,
the timing of its distributions, and the diversification of its
assets, each Fund will not be subject to Federal income tax on its net
income (including net short- term and long-term capital gain) which is
distributed to shareholders at least annually in accordance with the
timing requirements of the Code.
Each Fund will be subject to a 4% non-deductible Federal excise
tax on certain amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum
distribution requirements. Each Fund intends under normal
circumstances to avoid liability for such tax by satisfying such
distribution requirements.
Distributions from a Fund's current or accumulated earnings and
profits ("E&P"), as computed for Federal income tax purposes, will be
taxable as described in the Funds' Prospectuses whether taken in
shares or in cash. Distributions, if any, in excess of E&P will
constitute a return of capital, which will first reduce an investor's
tax basis in Fund shares and thereafter (after such basis is reduced
to zero) will generally give rise to capital gains. Shareholders
electing to receive distributions in the form of additional shares
will have a cost basis for Federal income tax purposes in each share
so received equal to the amount of cash they would have received had
they elected to receive the distributions in cash, divided by the
number of shares received.
For each Fund, the amount of net short-term and long-term capital
gains, if any, in any given year will vary depending upon the
Adviser's current investment strategy and whether the Adviser believes
it to be in the best interest of the Fund to dispose of portfolio
securities or enter into options or futures transactions that will
generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to
realized or unrealized appreciation in the Fund's portfolio.
Consequently, subsequent distributions from such appreciation may be
taxable to such investor even if the net asset value of the investor's
shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions in reality
represent a return of a portion of the purchase price.
Upon a redemption of shares of a Fund (including by exercise of
the exchange privilege) a shareholder may realize a taxable gain or
loss depending upon his basis in his shares. Such gain or loss will
be treated as capital gain or loss if the shares are capital assets in
the shareholder's hands and will be long-term or short-term, depending
upon the shareholder's tax holding period for the shares. A sales
charge paid in purchasing Class A shares of a Fund cannot be taken
into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock Fund
are subsequently acquired without payment of a sales charge pursuant
to the reinvestment or exchange privilege. Such disregarded load will
result in an increase in the shareholder's tax basis in the shares
subsequently acquired. Also, any loss realized on a redemption or
exchange may be disallowed to the extent the shares disposed of are
replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are
disposed of, such as pursuant to the Dividend Reinvestment Plan. In
such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized upon the
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redemption of shares with a tax holding period of six months or less
will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain with
respect to such shares.
Although its present intention is to distribute all net
short-term and long-term capital gains, if any, each Fund reserves the
right to retain and reinvest all or any portion of its "net capital
gain," which is the excess, as computed for Federal income tax
purposes, of net long-term capital gain over net short-term capital
loss in any year. The Funds will not in any event distribute net
long-term capital gains realized in any year to the extent that a
capital loss is carried forward from prior years against such gain.
To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to
Federal income tax in the hands of a Fund. Each shareholder would be
treated for Federal income tax purposes as if such Fund had
distributed to him on the last day of its taxable year his pro rata
share of such excess, and he had paid his pro rata share of the taxes
paid by the Fund and reinvested the remainder in the Fund.
Accordingly, each shareholder would (a) include his pro rata share of
such excess as long-term capital gain income in his return for his
taxable year in which the last day of the Fund's taxable year falls,
(b) be entitled either to a tax credit on his return for, or to a
refund of, his pro rata share of the taxes paid by the Fund, and (c)
be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and
his pro rata share of such taxes.
For Federal income tax purposes, each Fund is permitted to carry
forward a net capital loss in any year to offset its own net capital
gains, if any, during the eight years following the year of the loss.
To the extent subsequent net capital gains are offset by such losses,
they would not result in Federal income tax liability to the
applicable Fund and, as noted above, would not be distributed as such
to shareholders. At December 31, 1994, the Intermediate Government
Fund had $735,389 of capital loss carryforwards available to offset
future net capital gains and such capital loss carryforwards expire as
follows: $28,597 in 1997 and $706,792 in 2002. At December 31, 1994,
the U.S. Government Fund had $53,533,889 of capital loss carryforwards
available to offset future net capital gains, and such capital loss
carryforwards expire as follows: $39,799,667 in 1996, $2,986,286 in
1997, $5,412,804 in 1998, $653,763 in 1999, $2,152,064 in 2000 and
$2,529,305 in 2002.
Dividends, including capital gain distributions, paid by the
Funds to their corporate shareholders will not qualify for the
corporate dividends received deduction in their hands.
Each Fund that invests in certain PIKs, zero coupon securities or
certain increasing rate securities (and, in general, any other
securities with original issue discount or with market discount if the
Fund elects to include market discount in income currently) must
accrue income on such investments prior to the receipt of the
corresponding cash payments. However, each Fund must distribute, at
least annually, all or substantially all of its net income, including
such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid Federal income and excise
taxes. Therefore, a Fund may have to dispose of its portfolio
securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy
distribution requirements.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and
post-retirement distributions and certain prohibited transactions, is
accorded to accounts maintained as qualified retirement plans.
Shareholders should consult their tax advisers for more information.
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Each Fund may be required to account for its transactions in
dollar rolls in a manner that, under certain circumstances, may limit
the extent of its participation in such transactions.
Limitations imposed by the Code on regulated investment companies
like the Funds may restrict each Fund's ability to enter into futures
and options forward transactions.
Certain options and futures transactions undertaken by a Fund may
cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect
the character as long-term or short-term and timing of some capital
gains and losses realized by the Fund. Also, certain of a Fund's
losses on its transactions involving options or futures contracts
and/or offsetting portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable
income or gains. Certain of the applicable tax rules may be modified
if a Fund is eligible and chooses to make one or more of certain tax
elections that may be available. These transactions may therefore
affect the amount, timing and character of a Fund's distributions to
shareholders. The Funds will take into account the special tax rules
(including consideration of available elections) applicable to options
and futures contracts in order to minimize any potential adverse tax
consequences.
The foregoing discussion relates solely to U.S. Federal income
tax law as applicable to U.S. persons (i.e., U.S. citizens or
residents and U.S. domestic corporations, partnerships, trusts or
estates) subject to tax under such law. The discussion does not
address special tax rules applicable to certain classes of investors,
such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of
or gains realized on the redemption (including an exchange) of Fund
shares may also be subject to state and local taxes. Shareholders
should consult their own tax advisers as to the Federal, state or
local tax consequences of ownership of shares of, and receipt of
distributions from, the Funds in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with
which their investment in a Fund is effectively connected will be
subject to U.S. Federal income tax treatment that is different from
that described above. These investors may be subject to nonresident
alien withholding tax at the rate of 30% (or a lower rate under an
applicable tax treaty) on amounts treated as ordinary dividends from a
Fund and, unless an effective IRS Form W-8 or authorized substitute is
on file, to 31% backup withholding on certain other payments from the
Fund. Non- U.S. investors should consult their tax advisers regarding
such treatment and the application of foreign taxes to an investment
in either Fund.
The Funds are not subject to Massachusetts corporate excise or
franchise taxes. Provided that a Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay
any Massachusetts income tax.
CALCULATION OF PERFORMANCE
For the 30-day period ended September 30, 1994, the annualized
yield of Intermediate Government Fund's Class A shares was 4.96%, and
for the 30-day period ended September 30, 1994, the annualized yield
of U.S. Government Fund's Class A shares was 4.97%. The average
annual total returns of the Class A shares of the Intermediate
Government Fund for the one, five and life of the Fund (November 3,
1986 (initial public offering)) periods ended September 30, 1994 were
(9.13)%, 5.73% and 6.16%, respectively. The average annual total
returns of the Class
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A shares of the U.S. Government Fund for the one, five and life of the
Fund (inception) periods ended September 30, 1994 were (9.37)%, 5.88%
and 6.20%, respectively. The performance of the Intermediate
Government Fund would be lower if the Fund's former investment adviser
did not voluntarily limit the Fund's operating expenses.
Each Fund's yield is computed by dividing net investment income
per share determined for a 30-day period by the maximum offering price
per share (which includes the full sales charge) on the last day of
the period, according to the following standard formula:
Yield = 2[(a-b + 1)6 -1]
---
cd
Where:
a= dividends and interest earned during the period.
b= net expenses accrued during the period.
c= the average daily number of Fund shares outstanding during
the period that would be entitled to receive dividends.
d= the maximum offering price per share on the last day of the
period (NAV where applicable).
Each Fund's total return is computed by finding the average
annual compounded rate of return over the 1-year, 5-year, and 10-year
periods that would equate the initial amount invested to the ending
redeemable value according to the following formula:
P (1 + T)n = ERV
P= a hypothetical initial investment of $1,000.
T= average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the designated periods or fraction
thereof.
In the case of Class A shares or Class B shares, this calculation
assumes the maximum sales charge is included in the initial investment
or the CDSC is applied at the end of the period. This calculation
also assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period. The
"distribution rate" is determined by annualizing the result of
dividing the declared dividends of a Fund during the period stated by
the maximum offering price or net asset value at the end of the
period.
In addition to average annual total returns, a Fund may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be
quoted with or without taking a Fund's maximum sales
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charge on Class A shares or the CDSC on Class B shares into account.
Excluding a Fund's sales charge on Class A shares and the CDSC on
Class B shares from a total return calculation produces a higher total
return figure.
From time to time, in reports and promotional literature, a
Fund's yield and total return will be compared to indices of mutual
funds and bank deposit vehicles such as Lipper Analytical Services,
Inc.'s "Lipper -- Fixed Income Fund Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on
approximately 1,700 fixed income mutual funds in the United States.
Ibbotson and Associates, CDA Weisenberger and F.C. Towers are also
used for comparison purposes, as well as the Russell and Wilshire
Indices.
Performance rankings and ratings reported periodically in
national financial publications such as MONEY Magazine, FORBES,
BUSINESS WEEK, THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR,
STANGER'S and BARRON'S, etc. will also be utilized.
The performance of a Fund is not fixed or guaranteed.
Performance quotations should not be considered to be representations
of performance of a Fund for any period in the future. The
performance of a Fund is a function of many factors including its
earnings, expenses and number of outstanding shares. Fluctuating
market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest;
and changes in operating expenses are all examples of items that can
increase or decrease a Fund's performance.
ADDITIONAL PERFORMANCE INFORMATION. The Funds may use
comparative performance information from certain industry research
materials and/or published in various periodicals. The
characteristics of the investments in such comparisons may be
different from those investments of a Fund's portfolio. In addition,
the formula used to calculate the performance statistics of such
investments may not be identical to the formula used by a Fund to
calculate its performance figures. From time to time, advertisements
or information for the Funds may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund. Such
advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in
more detail in the communication.
The following publications, indices, averages and investments
which may be used in advertisements or information concerning the
Funds for dissemination to investors or shareholders, include but are
not limited to:
a. Lipper-Mutual Fund Performance Analysis, Lipper-Fixed Income
Analysis, and Lipper Mutual Fund indices - measure total
return and average current yield for the mutual fund
industry. Ranks individual mutual fund performance over
specified time periods assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
b. CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk,
total return, and average rate of return (average annual
compounded growth rate) over specified time periods for the
mutual fund industry.
c. Mutual Fund Source Book and "Morningstar Mutual Funds"
published by Morningstar, Inc. - analyzes price, yield,
risk, and total return for selected mutual funds. Its
ratings of 1 (low) and 5 (high) stars are based on a fund's
historical risk/
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reward ratio compared with similar funds for 3-, 5- and
10-year periods, including all sales charges and fees.
Morningstar, Inc., considered to be an expert in independent
fund performance monitoring, has consented to the use of its
ratings in Fund advertisements.
d. Financial publications: Barrons, Business Week, Personal
Finance, Financial World, Forbes, Fortune, "The Wall Street
Journal", Muni Week, Weisenberger Investment Companies
Service, Institutional Investor, and Money - rate fund
performance over specified time periods and provide other
relative performance or industry information.
e. Consumer Price Index (or Cost of Living Index), published by
the U.S. Bureau of Labor Statistics - a statistical measure
of change, over time, in the price of goods and services in
major expenditure groups.
f. Stocks, Bonds, Bills, and Inflation, published by Ibbotson
Associates - historical measure of yield, price, and total
return for common and small company stock, long-term
government bonds, Treasury bills, and inflation.
g. Savings and Loan Historical Interest Rates - as published in
the U.S. Savings & Loan League Fact Book.
h. Salomon Brothers Broad Bond Index or its component indices -
The Broad Index measures yield, price and total return for
Treasury, Agency, Corporate, and Mortgage bonds.
i. Salomon Brothers Composite High Yield Index or its component
indices - The High Yield Index measures yield, price and
total return for Long-Term High-Yield Index,
Intermediate-Term High-Yield Index and Long-Term Utility
High-Yield Index.
j. Lehman Brothers Aggregate Bond Index or its component
indices (including Municipal Bond Index) - The Aggregate
Bond Index measures yield, price and total return for
Treasury, Agency, Corporate, Mortgage Government/Corporate,
Government, Treasury, Intermediate, High Yield and Yankee
bonds.
k. Standard & Poor's Bond Indices - measure yield and price of
Corporate, Municipal, and government bonds.
l. Other taxable investments, including certificates of deposit
(CDs), money market deposit accounts (MMDAs), checking
accounts, savings accounts, money market mutual funds, and
repurchase agreements.
m. Historical data supplied by the research departments of
Lehman Hutton, First Boston Corporation, Morgan Stanley,
Salomon Brothers, Merrill Lynch, and Donaldson Lufkin and
Jenrette.
n. Donoghue's Money Fund Reports - industry averages for 7-day
annualized and compounded yields of taxable, tax-free and
government money funds.
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o. The Value Line Mutual Fund Survey, published by Value Line,
assigns rankings of 1 (best) to 5 (worst) in terms of risk
adjusted performance covering more than 2,000 equity and
fixed income mutual funds.
In addition, advertisements and sales materials may contain
hypothetical performance examples for purposes of illustrating
reinvestment (or "compounding") of dividends at fixed rates of return
or tax advantages to be derived from deferring payment of federal (and
state) income taxes (at maximum rates) as compared to taxable
investments assuming fixed rates of return. Illustrations may also
includes (1) hypothetical investments in various retirement plans,
such as IRAs, made by investors of various ages or (2) comparisons to
retirement plans funded by annuity or bank products.
In assessing such comparisons, an investor should consider the
following factors:
a. It is generally either not possible or not practicable to
invest in an average or index of certain investments.
b. Certificates of deposit issued by banks and other depository
institutions represent an alternative income producing
product. Certificates of deposit may offer fixed or
variable interest rates and principal is guaranteed and may
be insured. Withdrawal of deposits prior to maturity will
normally be subject to a penalty. Rates offered by banks
and other depository institutions are subject to change at
any time specified by the issuing institution.
c. United States Treasury Bills, Notes or Bonds represent
alternative income producing products. Treasury obligations
are issued in selected denominations. Rates of Treasury
obligations are fixed at the time of issuance and payment of
principal and interest is backed by the full faith and
credit of the United States government. The market value of
such instruments will generally fluctuate inversely with
interest rates prior to maturity and will equal par value at
maturity.
Past performance is no guarantee of future results. In addition,
investors are advised to consult their brokers or financial advisers
when considering an investment in a Fund based upon performance
comparisons.
The composition of the investments in such indexes and the
characteristics of such benchmark investments are not identical to,
and in some cases are very different from, those of a Fund's
portfolio. These indexes and averages are generally unmanaged and the
items included in the calculations of such indexes and averages may
not be identical to the formulas used by a Fund to calculate its
performance figures.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio
securities and the allocation of brokerage commissions are made by the
Adviser and officers of the Trust pursuant to recommendations made by
an investment committee of the Adviser, which consists of officers and
directors of the Adviser and affiliates and officers and Trustees who
are interested persons of the Trust. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the
officers of the Trust, will offer the best price and market for the
execution of each such
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transaction. Purchases from underwriters of portfolio securities may
include a commission or commissions paid by the issuer, and
transactions with dealers serving as market makers reflect a "spread."
Investments in debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as
brokers; no brokerage commissions are payable on such transactions.
Each Fund's primary policy is to execute all purchases and sales
of portfolio instruments at the most favorable prices consistent with
best execution, considering all of the costs of the transaction
including brokerage commissions. This policy governs the selection of
brokers and dealers and the market in which a transaction is executed.
Consistent with the foregoing primary policy, the Rules of Fair
Practice of the NASD and other policies that the Trustees may
determine, the Adviser may consider sales of shares of the Funds as a
factor in the selection of broker-dealers to execute the Funds'
portfolio transactions.
To the extent consistent with the foregoing, the Funds will be
governed in the selection of brokers and dealers, and the negotiation
of brokerage commission rates and dealer spreads, by the reliability
and quality of the services, including primarily the availability and
value of research information and to a lesser extent statistical
assistance furnished to the Adviser of the Funds, and their value and
expected contribution to the performance of the Funds. It is not
possible to place a dollar value on information and services to be
received from brokers and dealers, since it is only supplementary to
the research efforts of the Adviser. The receipt of research
information is not expected to reduce significantly the expenses of
the Adviser. The research information and statistical assistance
furnished by brokers and dealers may benefit the Life Company or other
advisory clients of the Adviser, and conversely, brokerage commissions
and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the
Funds. The Funds will make no commitments to allocate portfolio
transactions upon any prescribed basis. While the Trust's officers
will be primarily responsible for the allocation of the Funds'
brokerage business, their policies and practices in this regard must
be consistent with the foregoing and will at all times be subject to
review by the Trustees. For the fiscal years ended March 31, 1994,
1993 and 1992, no negotiated brokerage commissions were paid on
portfolio transactions.
As permitted by Section 28(e) of the Securities Exchange Act of
1934, a Fund may pay to a broker which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of
the commission which another broker would have charged for effecting
that transaction. This practice is subject to a good faith
determination by the Trustees that the price is reasonable in light of
the services provided and to policies that the Trustees may adopt from
time to time. During the fiscal year ended March 31, 1994, the Funds
did not pay commissions as compensation to any brokers for research
services such as industry, economic and company reviews and
evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect
sole shareholder of John Hancock Freedom Securities Corporation and
its subsidiaries, three of which, Tucker Anthony Incorporated ("Tucker
Anthony") John Hancock Distributors, Inc. ("John Hancock
Distributors") and Sutro & Company, Inc. ("Sutro"), are broker-dealers
("Affiliated Brokers"). Pursuant to procedures determined by the
Trustees and consistent with the above policy of obtaining best net
results, the Fund may execute portfolio transactions with or through
Tucker Anthony or Sutro. During the year ended March 31, 1994, the
Funds did not execute any portfolio transactions with then affiliated
brokers.
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Any of the Affiliated Brokers may act as broker for a Fund on
exchange transactions, subject, however, to the general policy of the
Funds set forth above and the procedures adopted by the Trustees
pursuant to the 1940 Act. Commissions paid to an Affiliated Broker
must be at least as favorable as those which the Trustees believe to
be contemporaneously charged by other brokers in connection with
comparable transactions involving similar securities being purchased
or sold. A transaction would not be placed with an Affiliated Broker
if the Fund would have to pay a commission rate less favorable than
the Affiliated Broker's contemporaneous charges for comparable
transactions for its other most favored, but unaffiliated, customers,
except for accounts for which the Affiliated Broker acts as a clearing
broker for another brokerage firm, and any customers of the Affiliated
Broker not comparable to the Fund as determined by a majority of the
Trustees who are not interested persons (as defined in the 1940 Act)
of the Trust, the Adviser or the Affiliated Brokers. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an
investment adviser to the Funds, the obligation to provide investment
management services, which includes elements of research and related
investment skills, such research and related skills will not be used
by the Affiliated Brokers as a basis for negotiating commissions at a
rate higher than that determined in accordance with the above
criteria. The Funds will not effect principal transactions with
Affiliated Brokers. The Funds may, however, purchase securities from
other members of underwriting syndicates of which Tucker Anthony,
Sutro and John Hancock Distributors are members, but only in
accordance with the policy set forth above and procedures adopted and
reviewed periodically by the Trustees.
For the fiscal years ended March 31, 1992, 1993 and 1994, U.S.
Government Fund paid to the former investment adviser brokerage
commissions in the amounts of $39,911, $6,395 and $5,612,
respectively. The former investment adviser did not receive any
brokerage commissions on portfolio transactions effected on behalf of
Intermediate Government Fund.
Brokerage or other transaction costs of a Fund are generally
commensurate with the rate of portfolio activity. The portfolio
turnover rates for the Funds for (a) the fiscal year ended March 31,
1993 and (b) the fiscal year ended March 31, 1994 were:
Intermediate Government Fund - (a) 73% and (b) 89%.
U.S. Government Fund - (a) 342% and (b) 264%.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116,
Boston, MA 02205-9116, a wholly owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Funds.
Intermediate Government Fund pays Investor Services monthly a transfer
agent fee equal to $16.00 per account for the Class A shares and
$18.50 per account for the Class B shares on an annual basis, plus
out-of-pocket expenses.
U.S. Government Fund pays Investor Services monthly a transfer
agent fee equal to $20.00 per account for the Class A shares and
$22.50 per account for the Class B shares on an annual basis, plus
out-of-pocket expenses.
CUSTODY OF PORTFOLIO
Portfolio securities of the Funds are held pursuant to a
custodian agreement between the Trust, on behalf of each Fund, and
Investors Bank and Trust ("IBT") 24 Federal Street, Boston,
Massachusetts. Under the custodian agreement, IBT performs custody,
portfolio and fund accounting services.
-39-
<PAGE> 224
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts
02116, has been selected as the independent auditors of each Fund.
The financial statements of each Fund included in its Prospectus and
this Statement of Additional Information have been audited by Ernst &
Young LLP for the periods indicated in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-40-
<PAGE> 225
FINANCIAL STATEMENTS
F-1
<PAGE> 226
FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
The STATEMENT OF ASSETS AND LIABILITIES is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on March 31, 1995. You'll
also find the net asset value and the maximum offering price per share as of
that date.
The STATEMENT OF OPERATIONS summarizes the Fund's investment income earned
and expenses incurred in operating the Fund.
It also shows net gains (losses) for the period stated.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
ASSETS:
Investments at value - Note C:
U.S. government and agencies
securities (cost - $17,602,355) $17,558,149
Joint repurchase agreement (cost - $77,000)....... 77,000
Corporate savings account......................... 546
-----------
17,635,695
Receivable for shares sold.......................... 1,820
Interest receivable................................. 239,020
Other assets........................................ 5,992
-----------
Total Assets 17,882,527
--------------------------------------------------------
LIABILITIES:
Dividend payable.................................... 73,521
Payable to John Hancock Advisers, Inc.
and affiliates - Note B............................. 13,437
Accounts payable and accrued expenses............... 14,662
-----------
Total Liabilities 101,620
--------------------------------------------------------
NET ASSETS:
Capital paid-in..................................... 71,585,634
Accumulated net realized loss on investments and
financial futures contracts......................... (53,759,415)
Net unrealized depreciation of investments ......... (44,206)
Distributions in excess of net investment income.... (1,106)
-----------
Net Assets ......................... $17,780,907
========================================================
NET ASSET VALUE PER SHARE:
(Based on net assets and shares of beneficial interest
outstanding - unlimited number of shares authorized
with $0.01 per share par value, respectively)
Class A - $17,582,147/2,290,672 .................... $ 7.68
------------------------------------------------------------------------
Class B - $198,760/25,882........................... $ 7.68
------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($7.68 x 104.99%)......................... $ 8.06
------------------------------------------------------------------------
<FN>
** On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
** Class B shares commenced operations on September 30, 1994.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
Year ended March 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
Investment Income:
Interest.............................................. $1,932,680
----------
Expenses:
Investment management fee - Note B.................. 135,102
Distribution/service fee - Note B
Class A......................................... 51,811
Class B **...................................... 491
Custodian fee....................................... 58,211
Interest expense.................................... 35,620
Registration and filing fees........................ 27,254
Auditing fee........................................ 23,901
Transfer agent fee.................................. 14,850
Printing............................................ 10,278
Trustees' fees...................................... 6,393
Legal fees.......................................... 2,078
Miscellaneous....................................... 1,559
Advisory Board Fee.................................. 379
----------
Total Expenses................. 367,927
-----------------------------------------------------
Net Investment Income.......... 1,564,753
-----------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold................ (2,458,310)
Net realized gain on financial futures contracts..... 17,960
Change in net unrealized appreciation/depreciation
of investments....................................... 1,503,049
Change in net unrealized appreciation/depreciation
of financial futures contracts....................... (13,750)
----------
Net Realized and Unrealized
Loss on Investments............. (951,051)
------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations....... $ 613,702
======================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 227
<TABLE>
FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1995 1994
------- -------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.............................................................................. $ 1,564,753 $ 1,515,561
Net realized gain (loss) on investments sold and financial futures contracts....................... (2,440,350) 205,404
Change in net unrealized appreciation/depreciation of investments and financial futures contracts 1,489,299 (1,650,540)
----------- -----------
Net Increase in Net Assets Resulting from Operations...................................... 613,702 70,425
----------- -----------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.5678 and $0.6056 per share, respectively)........................................ (1,549,572) (1,576,907)
Class B ** - ($0.2490 and none per share, respectively)........................................ (3,939) ....
Distributions in excess of net investment income
Class A - ($0.0050 and $0.0042 per share, respectively)........................................ (1,106) (11,242)
----------- -----------
Total Distributions to Shareholders............................................................ (1,554,617) (1,588,149)
----------- -----------
From Fund Share Transactions - Net*................................................................... (5,018,515) 7,098,572
----------- -----------
NET ASSETS:
Beginning of period................................................................................ 23,740,337 18,159,489
----------- -----------
End of period (including distributions in excess of net investment income of $1,106 and
$11,242, respectively)........................................................................... $17,780,907 $23,740,337
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
* ANALYSIS OF FUND SHARE TRANSACTIONS: YEAR ENDED MARCH 31,
------------------------------------------------------
1995 1994
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold......................................................... 384,350 $ 2,961,231 1,260,831 $10,724,985
Shares issued to shareholders in reinvestment of distributions...... 58,661 450,381 51,515 433,356
----------- ----------- ----------- -----------
443,011 3,411,612 1,312,346 11,158,341
Less shares repurchased............................................. (1,126,066) (8,625,358) (478,553) (4,059,769)
----------- ----------- ----------- -----------
Net increase (decrease)............................................. (683,055) $(5,213,746) 833,793 $ 7,098,572
=========== =========== =========== ===========
CLASS B **
Shares sold......................................................... 27,216 $ 205,317
Shares issued to shareholders in reinvestment of distributions 34 263
----------- -----------
27,250 205,580
Less shares repurchased................................ (1,368) (10,349)
----------- -----------
Net increase........................................... 25,882 $ 195,231
=========== ===========
<FN>
** Class B shares commenced operations on September 30, 1994.
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS FISCAL YEAR. THE DIFFERENCE
REFLECTS EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES,
DISTRIBUTIONS PAID TO SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY
SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF
FUND SHARES SOLD, REINVESTED AND REDEEMED DURING THE LAST TWO YEARS, ALONG
WITH THE CORRESPONDING DOLLAR VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 228
<TABLE>
FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the periods indicated, investment returns, key ratios and
supplemental data are listed as follows:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------
1995(f) 1994 1993 1992 1991
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period......................... $ 7.98 $ 8.49 $ 8.16 $ 8.34 $ 8.18
------- ------- ------- ------- -------
Net Investment Income........................................ 0.58 0.58 0.61 0.87(a) 0.90
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts ................................. (0.31) (0.48) 0.43 (0.22) 0.11
------- ------- ------- ------- -------
Total from Investment Operations......................... 0.27 0.10 1.04 0.65 1.01
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income......................... (0.57) (0.61) (0.71) (0.83) (0.85)
------- ------- ------- ------- -------
Net Asset Value, End of Period............................... $ 7.68 $ 7.98 $ 8.49 $ 8.16 $ 8.34
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value................... 3.68% 1.05% 13.13% 8.05% 13.04%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................... $17,582 $23,740 $18,159 $21,184 $123,493
Ratio of Expenses to Average Net Assets (b).................. 1.59%(b) 1.37% 1.31% 1.08% 1.13%
Ratio of Net Investment Income to Average Net Assets......... 7.69% 6.86% 7.07% 10.48% 10.72%
Portfolio Turnover Rate...................................... 438% 264% 342% 179% 154%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS, AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 229
<TABLE>
FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
FINANCIAL HIGHLIGHTS (continued)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1994
(COMMENCEMENT OF
OPERATIONS)
TO MARCH 31,
1995(f)
------------------
<S> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....................................................... $ 7.61(c)
-------
Net Investment Income...................................................................... 0.26(a)
Net Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts .... 0.06(d)
-------
Total from Investment Operations....................................................... 0.32
-------
Less Distributions:
Dividends from Net Investment Income....................................................... (0.25)
-------
Net Asset Value, End of Period............................................................. $ 7.68
=======
Total Investment Return at Net Asset Value................................................. 4.28%(e)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................................................. $ 199
Ratio of Expenses to Average Net Assets (b)................................................ 2.34%*(b)
Ratio of Net Investment Income to Average Net Assets....................................... 6.94%*
Portfolio Turnover Rate.................................................................... 438%
<FN>
* On an annualized basis.
(a) On average month end shares outstanding.
(b) Excluding interest expense, which equalled 0.17% for the year ended March 31, 1995, 0.04% for the year ended
March 31, 1994 and 0.17% for the year ended March 31, 1992.
(c) Initial price to commence operations.
(d) May not accord to amounts shown elsewhere in the financial statements.
(e) Not annualized.
(f) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 230
<TABLE>
FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
SCHEDULE OF INVESTMENTS
March 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by U.S. Government Trust on March 31, 1995. The
schedule consists of two main categories: U.S. government and agencies securities and short-term investments. Short-term
investments, which represent the Fund's "cash" position, are listed last.
<CAPTION>
PAR VALUE
INTEREST MATURITY (000's MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- -------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
GOVERNMENTAL - U.S. (19.27%)
United States Treasury, Bond.................................. 12.625% 05-15-95 $2,910* $2,930,923
United States Treasury, Bond.................................... 12.000 08-15-13 360* 495,508
----------
3,426,431
----------
GOVERNMENTAL - U.S. AGENCIES (79.48%)
Government National Mortgage Association,
30 Yr SF Pass Thru Ctf...................................... 7.500 04-15-09 to 2,468* 2,389,956
05-15-24
30 Yr SF Pass Thru Ctf...................................... 8.000 05-15-24 to 3,989* 3,953,863
11-15-24
30 Yr SF Pass Thru Ctf...................................... 8.500 05-15-24 3,387* 3,436,056
30 Yr SF Pass Thru Ctf...................................... 9.000 04-15-16 to 3,999* 4,147,979
01-15-17
30 Yr SF Pass Thru Ctf ..................................... 9.500 10-15-19 11 11,407
30 Yr SF Pass Thru Ctf ..................................... 12.000 01-15-15 1 903
30 Yr SF Pass Thru Ctf...................................... 13.000 02-15-11 to 122 138,113
08-15-15
30 Yr SF Pass Thru Ctf...................................... 15.000 05-15-12 to 6 7,319
09-15-12
30 Yr SF Pass Thru Ctf ..................................... 15.500 11-15-11 41 46,122
----------
14,131,718
----------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $17,602,355) (98.75%) 17,558,149
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 231
<TABLE>
FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
PAR VALUE
INTEREST MATURITY (000's MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- -------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.43%)
Investment in a joint repurchase agreement
transaction with U.B.S. Securities Inc.,
Dated 03-31-95, Due 04-03-95 (secured by
U. S. Treasury Bond 6.250%, due 08-15-23,
and U.S Treasury Notes, 5.250% thru 9.125%
due 07-31-98 thru 05-15-01) - Note A......................... 6.125% 04-03-95 $77 $ 77,000
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account Current Rate 3.00%.......... 546
-----------
TOTAL SHORT-TERM INVESTMENTS (0.43%) 77,546
------ -----------
TOTAL INVESTMENTS (99.18%) $17,635,695
====== ===========
<FN>
* Securities, other than short-term investments, newly added to the portfolio during the period ended March 31, 1995.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 232
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
NOTE A -
ACCOUNTING POLICIES
John Hancock Bond Fund, (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of five series portfolios: John Hancock U.S. Government Trust
(the "Fund"), John Hancock Investment Quality Bond Trust, John Hancock
Government Securities Trust, John Hancock Intermediate Government Trust and
John Hancock Adjustable Government Trust. The Trustees may authorize the
creation of additional Funds from time to time to satisfy various investment
objectives. Effective December 22, 1994, the Trust and Funds changed names by
replacing the word Transamerica with John Hancock (see Note B).
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal
rights to voting, redemption, dividends, and liquidation, except that certain
expenses, subject to the approval of the Trustees, may be applied differently
to each class of shares in accordance with current regulations of the
Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution/service expenses under the
terms of a distribution plan, have exclusive voting rights regarding such
distribution plan. Class A Shares are subject to an initial sales charge of
up to 4.75% and a 12b-1 distribution plan. Class B Shares are subject to a
contingent deferred sales charge and a separate 12b-1 distribution plan. On
September 30, 1994, Class B shares were sold to commence class activity.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing
services or, at fair value as determined in good faith in accordance with
procedures approved by the Trustees. Short-term debt investments maturing
within 60 days are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc., a wholly-owned subsidiary of The Berkeley Financial Group, may
participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring
that the agreement is fully collateralized at all times.
REVERSE REPURCHASE AGREEMENT Prior to December 22, 1994 the
Fund entered into reverse repurchase agreements which involved the sale of
securities held by the Fund to a bank or securities firm with an agreement
that the Fund would buy back the securities at a fixed future date at a fixed
price plus an agreed amount of "interest" which was reflected in the
repurchase price. Reverse repurchase agreements are considered to be
borrowings by the Fund and the Fund used the proceeds obtained from the sale
of securities to purchase other investments. Effective December 22, 1994, the
Fund discontinued investing in reverse repurchase agreements.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the
financial markets. Writing puts and buying calls will tend to increase the
Fund's exposure to the underlying instrument and buying puts
13
<PAGE> 233
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
and writing calls will tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be
limited to the premium initially paid for the option. In all other cases, the
face (or "notional") amount of each contract at value will reflect the
maximum exposure of the Fund in these contracts, but the actual exposure will
be limited to the change in value of the contract over the period the
contract remains open.
Risks may also arise if counterparties do not perform under the
contracts' terms, or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options
have minimal credit risk as the exchanges act as counterparties to each
transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit and liquidity risks in over-the-counter option
contracts, the Fund will continuously monitor the creditworthiness of all its
counterparties.
At any particular time, except for purchased options, market or
credit risk may involve amounts in excess of those reflected in the Fund's
Statement of Assets and Liabilities.
There were no written option transactions for the period ended
March 31, 1995.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract will be valued at the official settlement price of
the board of trade or U.S. commodities exchange. Subsequent payments, known
as "variation margin", to and from the broker will be made on a daily basis
as the market price of the financial futures contract fluctuates. Daily
variation margin adjustments, arising from this "mark to market", will be
recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund will recognize a gain or
loss. Risks of entering into futures contracts include the possibility that
there may be an illiquid market and/or that a change in the value of the
contracts may not correlate with changes in the value of the underlying
securities. In addition, the Fund could be prevented from opening or
realizing the benefits of closing out futures positions because of position
limits or limits on daily price fluctuations imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of futures
contracts.
At March 31, 1995, there were no open positions in financial futures
contracts.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date
of purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
securities from either the date of issue or the date of purchase over the
life of the security, as required by the Internal Revenue Code.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments, to its shareholders. Therefore, no federal
income tax provision is required. For federal income tax purposes at December
31, 1994, the Fund has approximately $53,505,000 of capital loss
carryforwards available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforwards are used by the
Fund, no capital gain distributions will be made. The carryforwards expire as
follows: 1996 - $39,800,000, 1997 - $2,986,000, 1998 - $5,413,000, 1999 -
$654,000, 2000 - $2,152,000 and 2002 - $2,500,000. The Fund's tax year end is
December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment
securities is recorded on the accrual basis.
14
<PAGE> 234
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
The Fund records all distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such
distributions are determined in conformity with income tax regulations, which
may differ from generally accepted accounting principles. Dividends paid by
the Fund, if any, with respect to each class of shares will be calculated in
the same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class as explai
ned previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable
to an individual Fund. Expenses which are not identifiable to a specific Fund
are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class
of shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level
based on the appropriated net assets of each class and the specific expense
rate(s) applicable to each class.
RECLASSIFICATION Certain reclassifications have been made to 1994 amounts to
permit comparisons to the 1995 presentations.
NOTE B -
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, John Hancock Advisers, Inc. (the "Adviser"), a wholly
owned subsidiary of The Berkeley Financial Group, became the investment
management provider for the Fund with approval of the Trustees and
shareholders of the Fund. The Fund's former investment manager was
Transamerica Fund Management Company ("TFMC").
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment program
equivalent, to 0.650% of the first $200,000,000 of the Fund's average daily
net asset value, 0.625% of the next $300,000,000, and 0.600% of the Fund's
average daily net asset value in excess of $500,000,000. This fee structure is
consistent with the former agreement with TFMC. For the period ended
March 31, 1995, the advisory fee earned by the Adviser and TFMC amounted to
$30,022 and $105,080, respectively, resulting in a total fee of $135,102.
The Adviser and TFMC, for their respective periods, provided
administrative services to the Fund pursuant to an administrative service
agreement through January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most
restrictive state limit where the Fund is registered to sell shares of
beneficial interest, the fee payable to the Adviser will be reduced to the
extent of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses. The current limits are
2.5% of the first $30,000,000 of the Fund's average daily net asset value,
2.0% of the next $70,000,000 and 1.5% of the remaining average daily net
asset value.
On December 22, 1994, John Hancock Funds, Inc. ("JH Funds"), a
wholly-owned subsidiary of the Adviser, became the principal underwriter of
the Fund. Prior to this date, Transamerica Fund Distributors, Inc. ("TFD")
served as the principal underwriter and distributor of the Fund. For the
period ended March 31, 1995, JH Funds and TFD received net sales charges of
$33,473 with regard to sales of Class A shares. Out of this amount, $2,778
was retained and used for printing prospectuses, advertising, sales literature
and other purposes and $30,695 was paid as sales commissions to unrelated
broker-dealers.
Class B shares which are redeemed within six years of purchase will
be subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds, formerly TFD, and are used in
whole or in part to defray its expenses related to providing distribution
related services to the Fund
15
<PAGE> 235
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
in connection with the sale of Class B shares. For the period ended
March 31, 1995, contingent deferred sales charges amounted to $187.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan
with respect to Class A and Class B pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments for
distribution and service expenses which in total will not exceed on an annual
basis 0.25% of the Fund's average daily net assets attributable to Class A
shares and 1.00% of the Fund's average daily net assets attributable to Class
B shares, to reimburse for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. This fee structure and plan
is similar to the former arrangement with TFD.
The Board of Trustees approved a shareholder servicing agreement
between the Fund and John Hancock Investor Services Corporation ("Investor
Services"), a wholly-owned subsidiary of The Berkeley Financial Group, for
the period between December 22, 1994 and May 12, 1995, inclusive under which
Investor Services processed telephone transactions on behalf of the Fund. As
of May 15, 1995, the Fund entered into a full-service transfer agent
agreement with Investor Services. Prior to this date The Shareholder Services
Group was the transfer agent. The Fund will pay Investor Services a fee based
on transaction volume and number of shareholder accounts.
A partner with Baker & Botts was an officer of the Trust until
December 22, 1994. During the period ended March 31, 1995, legal fees paid to
Baker & Botts amounted to $1,481.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser
and its affiliates as well as Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Fund will make investments into other John Hancock Funds, as
applicable, to cover its liability with regard to the deferred compensation.
Investments to cover the Fund's deferred compensation liability will be
recorded on the Fund's books as other assets. The deferred compensation
liability will be marked to market on a periodic basis and income earned by
the investment will be recorded on the Fund's books.
The Fund has an independent advisory board composed of certain
members of the former Transamerica Board of Trustees who provide advice to
the current Trustees in order to facilitate a smooth management transition
for which the Fund pays the advisory board and its counsel a fee.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended March 31, 1995 aggregated $71,770,328
and $75,542,685, respectively.
The cost of investments owned at March 31, 1995 for Federal income
tax purposes was $17,679,355. Gross unrealized appreciation and depreciation
of investments aggregated $102,529, and $146,735, respectively, resulting in
net unrealized depreciation of $44,206.
16
<PAGE> 236
John Hancock Funds - U.S. Government Trust
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Bond Fund -
John Hancock U.S. Government Trust
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the John Hancock U.S. Government
Trust (the "Fund"), (formerly the Transamerica U.S. Government Trust), one of
the portfolios constituting John Hancock Bond Fund (the "Trust") (formerly
Transamerica Bond Fund), as of March 31, 1995, and the related statement of
operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 1995, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the John Hancock U.S. Government Trust portfolio of John Hancock
Bond Fund at March 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 15, 1995
17
<PAGE> 237
<TABLE>
EXHIBIT C
John Hancock Adjustable U.S. Government Trust
Pro-forma statement of assets and liabilities
March 31, 1995
Unaudited
<CAPTION>
John Hancock John Hancock
Adjustable U.S. Government Pro
U.S Government Trust Adjustments Forma
-------------- --------------- ----------- -----
<S> <C> <C> <C> <C>
Assets
Investments at value $22,321,340 $17,635,695 $ - $ 39,957,035
Receivable for shares sold - 1,820 - 1,820
Interest receivable 186,357 239,020 - 425,377
Deferred expenses 16,956 - - 16,956
Receivable for investments sold 84,585 - - 84,585
Receivable from John Hancock Advisers,
Inc. and Affiliates 38,668 (13,437) - 25,231
Other assets 8,829 5,992 - 14,821
----------- ----------- ------------ ------------
Total Assets 22,656,735 17,869,090 - 40,525,825
----------- ----------- ------------ ------------
Liabilities
Dividend payable 48,360 73,521 - 121,881
Payable for shares purchased 142,111 - - 142,111
Accounts payable and accrued expenses 22,171 14,662 - 36,833
----------- ----------- ------------ ------------
Total Liabilities 212,642 88,183 - 300,825
----------- ----------- ------------ ------------
Net Assets:
Capital Paid-in 23,566,220 71,585,634 - 95,151,854
Accumulated net realized loss
on investment and
financial futures contracts (991,632) (53,759,415) - (54,751,047)
Net unrealized depreciation
of investments (163,377) (44,206) - (207,583)
Undistributed net investment income 32,882 (1,106) - 31,776
----------- ----------- ------------ ------------
Net Assets $22,444,093 $17,780,907 $ - $ 40,225,000
----------- ----------- ------------ ------------
Net Assets:
Adjustable
Class A $12,943,225 $ - $ 17,582,147 (a) $ 30,525,372
Class B 9,500,868 - 198,760 (a) 9,699,628
U.S. Government
Class A - 17,582,147 (17,582,147)(a) -
Class B - 198,760 (198,760)(a) -
----------- ----------- ------------ ------------
$22,444,093 $17,780,907 $ - $ 40,225,000
=========== =========== ============ ============
Shares Outstanding:
Adjustable
Class A 1,323,395 - 1,797,707 (a) 3,121,102
Class B 971,446 - 20,323 (a) 991,769
U.S. Government
Class A - 2,290,672 (2,290,672)(a) -
Class B - 25,882 (25,882)(a) -
----------- ----------- ------------ ------------
Net asset value per share:
Adjustable
Class A $9.78 - - $9.78
Class B $9.78 - - $9.78
U.S. Government
Class A - $7.68 ($7.68) -
Class B - $7.68 ($7.68) -
</TABLE>
See Notes to Pro-forma
Financial Statements.
<PAGE> 238
<TABLE>
John Hancock Adjustable U.S. Government Trust
Pro-forma statement of operations
March 31, 1995
Unaudited
<CAPTION>
John Hancock John Hancock
Adjustable U.S. Government Pro
U.S Government Trust Adjustments Forma
-------------- --------------- ----------- ------
<S> <C> <C> <C> <C>
Investment Income $1,645,274 $1,932,680 $ - $3,577,954
---------- ---------- ------------ ----------
Expenses
Investment management fee 114,779 135,102 (52,008)(b) 197,873
Distribution fee
Class A 44,214 51,811 - 96,025
Class B 98,958 491 (49)(d) 99,400
Transfer agent fee
Class A 26,165 14,780 3,691 (c) 44,636
Class B 16,267 70 (3,691)(c) 12,646
Custodian fee 73,844 58,211 (29,105)(e) 102,950
Registration and filing fees 24,999 27,254 (13,063)(e) 39,190
Auditing fees 15,999 23,901 (9,900)(e) 30,000
Deferred expense 9,704 - - 9,704
Legal fees 5,000 2,078 - 7,078
Printing 15,754 10,278 (6,508)(e) 19,524
Trustees fees 11,924 6,393 - 18,317
Interest expense - 35,620 - 35,620
Miscellaneous 4,699 1,559 (779)(e) 5,479
Advisory Board fee 514 379 - 893
---------- ---------- ------------ ----------
Total expenses 462,820 367,927 (111,412) 719,335
Reimbursement of expenses (176,098) - (99,856)(f) (275,954)
---------- ---------- ------------ ----------
Net Expenses 286,722 367,927 (211,268) 443,381
---------- ---------- ------------ ----------
Net Investment Income 1,358,552 1,564,753 211,268 3,134,573
---------- ---------- ------------ ----------
Realized and Unrealized
Gain (loss) on investments
Net realized loss on
investments sold (720,821) (2,458,310) - (3,179,131)
Net realized gain on
financial futures contracts - 17,960 - 17,960
Change in net unrealized appreciation/
depreciation of investments 286,551 1,503,049 - 1,789,600
Change in net unrealized appreciation/
depreciation of financial
futures contracts - (13,750) - (13,750)
---------- ---------- ------------ ----------
Net realized and unrealized
loss on investments and
financial futures contracts (434,270) (951,051) - (1,385,321)
---------- ---------- ------------ ----------
Net increase in Net Assets
Resulting from Operations $ 924,282 $ 613,702 $ 211,268 $1,749,252
========== ========== ============ ==========
</TABLE>
See Notes to Pro-forma
Financial Statements.
<PAGE> 239
<TABLE>
FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
SCHEDULE OF INVESTMENTS
March 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by U.S. Government Trust on March 31, 1995. The
schedule consists of two main categories: U.S. government and agencies securities and short-term investments. Short-term
investments, which represent the Fund's "cash" position, are listed last.
<CAPTION>
PAR VALUE
INTEREST MATURITY (000's MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- -------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
GOVERNMENTAL - U.S. (19.27%)
United States Treasury, Bond.................................. 12.625% 05-15-95 $2,910* $2,930,923
United States Treasury, Bond.................................... 12.000 08-15-13 360* 495,508
----------
3,426,431
----------
GOVERNMENTAL - U.S. AGENCIES (79.48%)
Government National Mortgage Association,
30 Yr SF Pass Thru Ctf...................................... 7.500 04-15-09 to 2,468* 2,389,956
05-15-24
30 Yr SF Pass Thru Ctf...................................... 8.000 05-15-24 to 3,989* 3,953,863
11-15-24
30 Yr SF Pass Thru Ctf...................................... 8.500 05-15-24 3,387* 3,436,056
30 Yr SF Pass Thru Ctf...................................... 9.000 04-15-16 to 3,999* 4,147,979
01-15-17
30 Yr SF Pass Thru Ctf ..................................... 9.500 10-15-19 11 11,407
30 Yr SF Pass Thru Ctf ..................................... 12.000 01-15-15 1 903
30 Yr SF Pass Thru Ctf...................................... 13.000 02-15-11 to 122 138,113
08-15-15
30 Yr SF Pass Thru Ctf...................................... 15.000 05-15-12 to 6 7,319
09-15-12
30 Yr SF Pass Thru Ctf ..................................... 15.500 11-15-11 41 46,122
----------
14,131,718
----------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $17,602,355) (98.75%) 17,558,149
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 240
<TABLE>
FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Trust
PAR VALUE
INTEREST MATURITY (000's MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- -------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.43%)
Investment in a joint repurchase agreement
transaction with U.B.S. Securities Inc.,
Dated 03-31-95, Due 04-03-95 (secured by
U. S. Treasury Bond 6.250%, due 08-15-23,
and U.S Treasury Notes, 5.250% thru 9.125%
due 07-31-98 thru 05-15-01) - Note A......................... 6.125% 04-03-95 $77 $ 77,000
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account Current Rate 3.00%.......... 546
-----------
TOTAL SHORT-TERM INVESTMENTS (0.43%) 77,546
------ -----------
TOTAL INVESTMENTS (99.18%) $17,635,695
====== ===========
<FN>
* Securities, other than short-term investments, newly added to the portfolio during the period ended March 31, 1995.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 241
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund (Portfolio)
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
THE ADJUSTABLE U.S. GOVERNMENT FUND ON MARCH 31, 1995. IT'S DIVIDED INTO TWO
MAIN CATEGORIES: U.S. GOVERNMENT AND AGENCIES OBLIGATIONS AND SHORT-TERM
INVESTMENTS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION,
ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
March 31, 1995
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS
FEDERAL HOME LOAN MORTGAGE CORP,
Adjustable Rate Mortgage
Due 10-01-18 ...................... 5.375% $ 155 $ 153,973
Due 05-01-17 ...................... 5.627 12 11,687
Due 02-01-19 ...................... 5.839 32 31,692
Due 10-01-18 ...................... 5.856 283 280,708
Due 05-01-17 ...................... 6.375 54 53,674
Due 08-01-17 ...................... 6.750 22 21,769
Due 01-01-04 ...................... 7.240 505 508,195
Due 10-01-19 ...................... 7.334 2,389 2,419,886
Due 03-01-19 ...................... 7.457 2,057 2,088,314
Due 10-01-18 ...................... 7.750 60 59,435
Due 12-01-01 ...................... 9.500 32 32,958
Due 01-01-01 ...................... 11.000 16 16,982
Due 01-01-11 ...................... 13.000 47 52,582
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
ADJUSTABLE RATE MORTGAGE
Due 12-01-17 ...................... 5.250 243 243,350
Due 05-01-16 ...................... 5.625 7 6,432
Due 07-01-18 ...................... 5.875 228 228,454
Due 04-01-19 ...................... 5.958 80 80,424
Due 05-01-17 ...................... 6.000 54 54,153
Due 04-01-16 ...................... 6.110 554* 552,650
Due 03-01-14 ...................... 6.439 35* 35,463
Due 06-01-14 ...................... 6.439 25 24,466
Due 06-01-19 ...................... 6.887 1,004 1,014,704
Due 06-01-18 ...................... 6.892 1,856* 1,917,288
Due 12-01-21 ...................... 6.912 1,523* 1,539,172
Due 04-01-18 ...................... 6.946 2,722* 2,762,962
Due 07-01-16 ...................... 7.000 47* 47,360
Due 01-01-28 ...................... 7.100 889* 898,134
Due 11-01-13 ...................... 7.120 106 107,109
Due 10-01-19 ...................... 7.160 1,659* 1,676,729
Due 09-01-18 ...................... 7.196 2,199 2,229,739
Due 03-01-27 ...................... 7.350 41 40,154
Due 09-01-18 ...................... 7.623 1,535 1,566,354
Due 05-01-17 ...................... 8.451 259 273,047
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 242
FINANCIAL STATEMENTS
John Hancock Funds - Adjustable U.S. Government Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
<S> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 07-15-01................................................... 9.000% $ 17 $ 17,314
30 Yr SF Pass thru Ctf 07-20-04................................................... 10.000 167* 173,340
30 Yr SF Pass thru Ctf 06-15-16................................................... 10.500 47 50,828
30 Yr SF Pass thru Ctf 05-15-15................................................... 11.500 8* 9,363
30 Yr SF Pass thru Ctf 07-15-05 to 05-15-14....................................... 12.000 312 350,375
30 Yr SF Pass thru Ctf 07-15-15................................................... 12.500 67 75,335
GNMA II Due 03-20-18.............................................................. 11.500 144 157,647
-----------
TOTAL U.S. GOVERNMENT AND
AGENCIES OBLIGATIONS
(Cost $22,027,578) (97.39%) 21,864,201
------ -----------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (2.04%)
Investment in a joint repurchase
agreement transaction with
U.B.S. Securities Inc. -
Dated 03-31-95, Due 04-03-95
(secured by U.S. Treasury Bonds,
6.25% Due 08-15-23 and by
U.S. Treasury Notes, 5.250%
thru 9.125% due 07-31-98
thru 05-15-01) - Note A........................................................... 6.125 457 457,000
-----------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%................................................................ 139
-----------
TOTAL SHORT-TERM INVESTMENTS (2.04%) 457,139
------ -----------
TOTAL INVESTMENTS (99.43%) $22,321,340
====== ===========
<FN>
* Securities, other than short-term investment, newly added to the portfolio
during the year ended March 31, 1995.
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Portfolio.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 243
JOHN HANCOCK ADJUSTABLE U.S. GOVERNMENT TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS - (UNAUDITED)
MARCH 31, 1995
Pro forma information is intended to provide shareholders of John Hancock U.S.
Government Trust (JHUS) with information about the impact of the proposed merger
by indicating how the merger might have affected information had the merger been
consummated as of March 31, 1994.
The pro forma statements of assets and liabilities and results of operations as
of March 31, 1995, have been prepared to reflect the merger of John Hancock
Adjustable U.S. Government Trust (JHAG) (as proposed to be renamed John Hancock
Intermediate Maturity Government Fund) and JHUS after collapsing the John
Hancock Adjustable U.S. Government Fund, a master fund in a master-feeder
structure, into JHAG and giving effect to pro forma adjustments described in the
notes listed below.
(a) Acqusition by JHAG of all the net assets of JHUS and issuance of JHAG
Class A and Class B shares in exchange for all of the outstanding
Class A and Class B shares, respectively, of JHUS.
(b) The investment advisory fee was adjusted to reflect the application of
the fee structure in effect for JHAG of 0.40% of average daily net
assets.
(c) The transfer agent fee for each of the Class A and Class B shares is
the total of the respective individual funds' transfer agent fees as a
percentage of net assets. The main criteria in determining the
transfer agent fees for a specific class is the number of shareholder
accounts.
(d) It was assumed that pursuant to the Class A and Class B plans of
distribution under rule 12b-1 of the Investment Company Act of 1940,
JHAG is to pay a distribution/service fee at 0.25% and 0.90% of the
average net assets of the Class A and Class B shares, respectively.
(e) The actual expenses incurred by JHAG and JHUS for various expenses
included on a pro forma basis were reduced to reflect the estimated
savings arising from the merger.
(f) Expenses of the combined fund for Class A and Class B shares were
limited to 0.75% and 1.40%, respectively, of the average net assets of
the respective class.
<PAGE> 244
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of John Hancock Bond Fund (the "Registrant") on Form N-1A under
the Securities Act of 1933 and the Investment Company Act of 1940 (File Nos.
2-66906 and 811-03006), which information is incorporated herein by reference.
ITEM 16. EXHIBITS:
1. Declaration of Trust dated Filed as Exhibit 1 to
November 27, 1984 Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
1.1 Amendments to Declaration of Filed as Exhibits 1 to
Trust Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
2. Amended By-Laws of Registrant Filed as Exhibit 2 to the
dated as of December 22, 1994. Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference.
3. Not applicable.
4. Form of Agreement and Plan of Filed herewith as Exhibit
Reorganization between the A to the Proxy Statement
Registrant, on behalf of John and Prospectus included as
Hancock Adjustable U.S. Part A of this Registration
Government Trust, and the Statement on Form N-14.
Registrant, on behalf of John
Hancock U.S. Government
Trust.
5. Not applicable.
6. Form of Investment Management Filed herewith as Exhibit 6.
Contract between the Registrant,
on behalf of John Hancock
Adjustable U.S. Government
Trust, and John Hancock
Advisers, Inc.
<PAGE> 245
7.1 Distribution Agreement between Filed as Exhibit 6(a) to
the Registrant and John Hancock Registrant's Registration
Funds, Inc. (formerly named John Statement on Form N-1A and
Hancock Broker Distribution incorporated herein by
Services, Inc.). reference.
7.2 Form of Soliciting Dealer Filed as Exhibit 6(b) to
Agreement between John Hancock Registrant's Registration
Funds, Inc. and Selected Dealers Statement on Form N-1A and
incorporated herein by
reference.
7.3 Form of Financial Institution Filed as Exhibit 6(c) to
Sales and Service Agreement Registrant's Registration
between John Hancock Funds, Inc. Statement on Form N-1A and
and Selected Financial incorporated herein by
Institutions. reference.
8. Not applicable.
9. Master Custodian Agreement Filed as Exhibit 8 to
between John Hancock Mutual Registrant's Registration
Funds (including Registrant) and Statement on Form N-1A and
Investors Bank & Trust Company. incorporated herein by
reference.
10.1 Class A Distribution Plan between Filed as Exhibit 15(a)(ii)
John Hancock Adjustable U.S. to Registrant's Registration
Government Trust and John Hancock Statement on Form N-1A and
Funds, Inc. incorporated herein by
reference.
10.2 Class B Distribution Plan between Filed as Exhibit 15(b)(ii)
John Hancock Adjustable U.S. to Registrant's Registration
Government Trust and John Statement on Form N-1A and
John Hancock Funds, Inc. incorporated herein by
reference.
10.3 Class A Distribution Plan between Filed as Exhibit 15(a)(iv)
John Hancock U.S. to Registrant's Registration
Government Trust and John Statement on Form N-1A and
Hancock Funds, Inc. incorporated herein by
reference.
10.4 Class B Distribution Plan between Filed as Exhibit 15(b)(iv)
John Hancock U.S. to Registrant's Registration
Government Trust and John Statement on Form N-1A and
Hancock Funds, Inc. incorporated herein by
reference.
11. Opinion as to legality of Filed herewith as
shares, and consent. Exhibit 11.
-2-
<PAGE> 246
12. Form of opinion as to tax Filed herewith as
matters, and consent. Exhibit 12.
13. Not applicable.
14. Consent of Ernst & Young LLP Filed herewith as
regarding the financial Exhibit 14.
statements and highlights of
John Hancock Adjustable U.S.
Government Trust and John
Hancock U.S. Government
Trust.
15. Not applicable.
16. Powers of Attorney dated Filed as addendum to
December 13, 1994 and signature pages of
December 22, 1994. Registrant's Registration Statement
on Form N-1A and incorporated herein
by reference.
17.1 Declaration of the Registrant Filed herewith as
pursuant to Rule 24f-2 under Exhibit 17.1
the Investment Company Act of
1940.
17.2 Prospectus of John Hancock Filed herewith as Exhibit 17.2
U.S. Government Trust,
dated May 15, 1995
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which
is a part of this Registration Statement by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c) under the Securities Act
of 1933, as amended (the "1933 Act"), the reoffering prospectus will contain
the information called for by the applicable registration form for reofferings
by persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
-3-
<PAGE> 247
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts, on the 9th day of June, 1995.
JOHN HANCOCK BOND FUND
By:/s/ Edward J. Boudreau, Jr.
-----------------------------
Edward J. Boudreau, Jr.
Chairman and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman and Trustee ) June 9, 1995
- ------------------------ (Principal Executive )
Edward J. Boudreau, Jr. Officer) )
)
)
/s/ James B. Little Senior Vice President ) June 9, 1995
- ------------------------ and Chief Financial )
James B. Little Officer (Principal )
Financial and )
Accounting Officer) )
)
Trustees:
William H. Cunningham* Trustee )
- ------------------------ )
William H. Cunningham )
)
)
Leo E. Linbeck, Jr.* Trustee )
- ------------------------ )
Leo E. Linbeck, Jr. )
</TABLE>
-4-
<PAGE> 248
Charles L. Ladner* Trustee )
- ------------------------ )
Charles L. Ladner )
)
)
Patricia P. McCarter* Trustee )
- ------------------------ )
Patricia P. McCarter )
)
)
Steven R. Pruchansky* Trustee )
- ------------------------ )
Steven R. Pruchansky )
)
)
Norman H. Smith* Trustee )
- ------------------------ )
Norman H. Smith )
)
)
John P. Toolan* Trustee )
- ------------------------ )
John P. Toolan )
)
)
James F. Carlin* Trustee )
- ------------------------ )
James F. Carlin )
)
- --------------
*By:/s/ Thomas H. Drohan June 9, 1995
---------------------
Thomas H. Drohan,
Attorney-in-fact
-5-
<PAGE> 249
<TABLE>
EXHIBIT INDEX
The following exhibits are filed as part of this Registration
Statement.
<CAPTION>
Exhibit No. Description Page Number
- ------------------------------------------------------------------
<S> <C> <C>
4. Form of Agreement and Plan of See Part A
Reorganization between the of Registration
Registrant, on behalf of John Statement.
Hancock Adjustable U.S. Government
Trust, and the Registrant,
on behalf of John Hancock
U.S. Government Trust.
6. Form of Investment Management
Contract between the Registrant,
on behalf of John Hancock
Adjustable U.S. Government Trust,
and John Hancock Advisers, Inc.
11. Opinion as to legality of shares,
and consent.
12. Form of opinion as to tax matters,
and consent.
14. Consent of Ernst & Young LLP
regarding the financial statements
and highlights of John Hancock
Adjustable U.S. Government Trust
and John Hancock U.S.
Government Trust.
17. Declaration of the Registrant
pursuant to Rule 24f-2 under
the Investment Company Act of
1940.
</TABLE>
-6-
<PAGE> 1
EXHIBIT 6.
JOHN HANCOCK INTERMEDIATE MATURITY GOVERNMENT FUND
(a series of John Hancock Bond Fund)
101 Huntington Avenue
Boston, Massachusetts 02199
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Form of
Investment Management Contract
Ladies and Gentlemen:
John Hancock Bond Fund (the "Trust"), of which John Hancock
Intermediate Maturity Government Fund (the "Fund") is a series, has been
organized as a business trust under the laws of The Commonwealth of
Massachusetts to engage in the business of an investment company. The Trust's
shares of beneficial interest, par value $.01 per share, may be divided into
series, each series representing the entire undivided interest in a separate
portfolio of assets. The Trust currently consists of one series, the Fund.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, as more fully
set forth below, and the Adviser is willing to provide such advice, management
and services under the terms and conditions hereinafter set forth.
Accordingly, the Adviser and the Trust, on behalf of the Fund, agree
as follows:
1. Delivery of Documents. The Trust has furnished the Adviser with
copies, properly certified or otherwise authenticated, of each of the
following:
(a) Declaration of Trust of the Trust, dated November 27, 1984, as
amended from time to time (the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
<PAGE> 2
(c) Resolutions of the Trustees selecting the Adviser as investment
adviser for the Fund and approving the form of this Agreement;
(d) Commitments, limitations and undertakings made by the Fund to
state securities or "blue sky" authorities for the purpose of
qualifying shares of the Fund for sale in such states; and
(e) The Trust's Code of Ethics.
The Trust will furnish to the Adviser from time to time copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
2. Investment and Management Services. The Adviser will use its best
efforts to provide to the Fund continuing and suitable investment programs with
respect to investments, consistent with the investment objectives, policies and
restrictions of the Fund. In the performance of the Adviser's duties
hereunder, subject always (x) to the provisions contained in the documents
delivered to the Adviser pursuant to Section 1, as each of the same may from
time to time be amended or supplemented, and (y) to the limitations set forth
in the Fund's then-current Prospectus and Statement of Additional Information
included in the registration statement of the Trust as in effect from time to
time under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended (the "1940 Act"), the Adviser will, at its own expense:
(a) furnish the Fund with advice and recommendations, consistent with
the investment objectives, policies and restrictions of the Fund,
with respect to the purchase, holding and disposition of portfolio
securities, including the purchase and sale of options, alone or
in consultation with any sub-adviser or sub-advisers appointed
pursuant to this Agreement and subject to the provisions of any
sub-investment management contract respecting the responsibilities
of such sub-adviser or sub-advisers;
(b) advise the Fund in connection with policy decisions to be made by
the Trustees or any committee thereof with respect to the Fund's
investments and, as requested, furnish the Fund with research,
economic and statistical data in connection with the Fund's
investments and investment policies;
(c) provide administration of the day-to-day investment operations of
the Fund;
2
<PAGE> 3
(d) submit such reports relating to the valuation of the Fund's
securities as the Trustees may reasonably request;
(e) assist the Fund in any negotiations relating to the Fund's
investments with issuers, investment banking firms, securities
brokers or dealers and other institutions or investors;
(f) consistent with the provisions of Section 8 of this Agreement,
place orders for the purchase, sale or exchange of portfolio
securities with brokers or dealers selected by the Adviser,
provided that in connection with the placing of such orders and
the selection of such brokers or dealers the Adviser shall seek to
obtain execution and pricing within the policy guidelines
determined by the Trustees and set forth in the Prospectus and
Statement of Additional Information of the Fund as in effect from
time to time;
(g) provide office space and office equipment and supplies, the use of
accounting equipment when required, and necessary executive,
clerical and secretarial personnel for the administration of the
affairs of the Fund;
(h) from time to time or at any time requested by the Trustees, make
reports to the Fund of the Adviser's performance of the foregoing
services and furnish advice and recommendations with respect to
other aspects of the business and affairs of the Fund;
(i) maintain all books and records with respect to the Fund's
securities transactions required by the 1940 Act, including sub-
paragraphs (b)(5), (6), (9) and (10) and paragraph (f) of Rule
31a-1 thereunder (other than those records being maintained by the
Fund's custodian or transfer agent) and preserve such records for
the periods prescribed therefor by Rule 31a-2 of the 1940 Act (the
Adviser agrees that such records are the property of the Fund and
will be surrendered to the Fund promptly upon request therefor);
(j) obtain and evaluate such information relating to economies,
industries, businesses, securities markets and securities as the
Adviser may deem necessary or useful in the discharge of the
Adviser's duties hereunder;
3
<PAGE> 4
(k) oversee, and use the Adviser's best efforts to assure the
performance of the activities and services of the custodian,
transfer agent or other similar agents retained by the Fund; and
(l) give instructions to the Fund's custodian as to deliveries of
securities to and from such custodian and transfer of payment of
cash for the account of the Fund.
3. Subadvisers. The Adviser may engage one or more investment advisers
which are either registered as such or specifically exempt from registration
under the Investment Advisers Act of 1940, as amended, to act as subadvisers to
provide, with respect to the Fund, certain services set forth in Section 2 of
this Agreement, all as shall be set forth in a written contract to which the
Trust and the Adviser shall be parties, which contract shall be subject to
approval by the vote of a majority of the Trustees of the Trust who are not
interested persons of the Adviser, the subadviser or of the Trust, cast in
person at a meeting called for the purpose of voting on such approval and by the
vote of a majority of the outstanding voting securities of the Fund and
otherwise consistent with the terms of the 1940 Act. Any fee, compensation or
expense to be paid to any subadviser shall be paid by the Adviser, and no
obligation to the subadviser shall be incurred on the Fund's or Trust's behalf,
except as agreed upon by the Trustees of the Trust and otherwise consistent with
the terms of the 1940 Act.
4. Expenses paid by the Adviser. The Adviser will pay:
(a) the compensation and expenses of all officers and employees of the
Fund;
(b) the expenses of office rent, telephone and other utilities, office
furniture, equipment, supplies and other expenses of the Fund;
(c) any other expenses incurred by the Adviser in connection with the
performance of its duties hereunder; and
(d) premiums for such insurance as may be agreed upon by the Adviser
and the Trustees.
5. Expenses of the Fund Not Paid by the Adviser. The Adviser will not be
required to pay any expenses which this Agreement does not expressly make
payable by it. In particular, and without limiting the generality of the
foregoing but subject to the provisions of Section 4, the Adviser will not be
required to pay under this Agreement:
4
<PAGE> 5
(a) any and all expenses, taxes and governmental fees incurred by
the Trust or the Fund prior to the effective date of this
Agreement;
(b) without limiting the generality of the foregoing clause (a),
the expenses of organizing the Trust and the Fund (including
without limitation, legal, accounting and auditing fees and
expenses incurred in connection with the matters referred to in
this clause (b)), of initially registering shares of the Trust
under the Securities Act of 1933, as amended, and of qualifying
the shares for sale under state securities laws for the initial
offering and sale of shares;
(c) the compensation and expenses of Trustees who are not interested
persons (as used in this Agreement, such term shall have the
meaning specified in the 1940 Act) of the Adviser and of
independent advisers, independent contractors, consultants,
managers and other unaffiliated agents employed by the Fund other
than through the Adviser;
(d) legal (including an allocable portion of the cost of its employees
rendering legal services to the Fund), accounting and auditing
fees and expenses of the Fund;
(e) the fees and disbursements of custodians and depositories of the
Fund's assets, transfer agents, disbursing agents, plan agents and
registrars;
(f) taxes and governmental fees assessed against the Fund's assets and
payable by the Fund;
(g) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders of the Fund;
(h) brokers' commissions and underwriting fees; and
(i) the expense of periodic calculations of the net asset value of the
shares of the Fund.
6. Compensation of the Adviser. For all services to be rendered,
facilities furnished and expenses paid or assumed by the Adviser as herein
provided, the Adviser shall be entitled to a fee, paid monthly in arrears, at
the annual rate of 0.40% of the average daily net assets of the Fund for the
preceding month.
5
<PAGE> 6
The "average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's Prospectus or otherwise consistent with the 1940
Act and the regulations promulgated thereunder. The Adviser will receive a pro
rata portion of such monthly fee for any periods in which the Adviser serves as
investment adviser to the Fund for less than a full month. On any day that the
net asset value calculation is suspended as specified in the Fund's Prospectus,
the net asset value for purposes of calculating the advisory fee shall be
calculated as of the date last determined.
In the event that normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of any limitation
imposed by the law of a state where the Fund is registered to sell shares of
beneficial interest, the fee payable to the Adviser will be reduced to the
extent required by law, and the Adviser will make any additional arrangements
that the Adviser is required by law to make.
In addition to the foregoing, the Adviser may from time to time agree
not to impose all or a portion of its fee otherwise payable hereunder (in
advance of the time such fee or portion thereof would otherwise accrue) and/or
undertake to pay or reimburse the Fund for all or a portion of its expenses not
otherwise required to be borne or reimbursed by the Adviser. Any such fee
reduction or undertaking may be discontinued or modified by the Adviser at any
time.
7. Other Activities of the Adviser and Its Affiliates. Nothing herein
contained shall prevent the Adviser or any affiliate or associate of the
Adviser from engaging in any other business or from acting as investment
adviser or investment manager for any other person or entity, whether or not
having investment policies or portfolios similar to the Fund's; and it is
specifically understood that officers, directors and employees of the Adviser
and those of its parent company, John Hancock Mutual Life Insurance Company, or
other affiliates may continue to engage in providing portfolio management
services and advice to other investment companies, whether or not registered,
to other investment advisory clients of the Adviser or of its affiliates and to
said affiliates themselves.
The Adviser shall have no obligation to acquire with respect to the
Fund a position in any investment which the Adviser, its officers, affiliates
or employees may acquire for its or their own accounts or for the account of
another client, if, in the sole discretion of the Adviser, it is not feasible
or desirable to acquire a position in such investment on behalf of the Fund.
Nothing herein contained shall prevent the Adviser from purchasing
6
<PAGE> 7
or recommending the purchase of a particular security for one or more funds or
clients while other funds or clients may be selling the same security.
8. Avoidance of Inconsistent Position. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither the Adviser
nor any of its investment management subsidiaries, nor any of the Adviser's or
such investment management subsidiaries' directors, officers or employees will
act as principal or agent or receive any commission, except as may be permitted
by the 1940 Act and rules and regulations promulgated thereunder. If any
occasions shall arise in which the Adviser advises persons concerning the
shares of the Fund, the Adviser will act solely on its own behalf and not in
any way on behalf of the Fund. Nothing herein contained shall limit or
restrict the Adviser or any of its officers, affiliates or employees from
buying, selling or trading in any securities for its or their own account or
accounts.
9. No Partnership or Joint Venture. Neither the Trust, the Fund nor the
Adviser are partners of or joint venturers with each other and nothing herein
shall be construed so as to make them such partners or joint venturers or
impose any liability as such on any of them.
10. Name of the Trust and the Fund. The Trust and the Fund may use the
name "John Hancock" or any name or names derived from or similar to the names
"John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company"
only for so long as this Agreement remains in effect. At such time as this
Agreement shall no longer be in effect, the Trust and the Fund will (to the
extent that they lawfully can) cease to use such a name or any other name
indicating that the Fund is advised by or otherwise connected with the Adviser.
The Fund acknowledges that it has adopted the name "John Hancock Intermediate
Maturity Government Fund" through permission of John Hancock Mutual Life
Insurance Company, a Massachusetts insurance company, and agrees that John
Hancock Mutual Life Insurance Company reserves to itself and any successor to
its business the right to grant the non-exclusive right to use the name "John
Hancock" or any similar name or names to any other corporation or entity,
including but not limited to any investment company of which John Hancock
Mutual Life Insurance Company or any subsidiary or affiliate thereof shall be
the investment adviser.
11. Limitation of Liability of the Adviser. The Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from reckless
7
<PAGE> 8
disregard by it of its obligations and duties under this Agreement. Any person,
even though also employed by the Adviser, who may be or become an employee of
and paid by the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Fund and
not as the Adviser's employee or agent.
12. Duration and Termination of this Agreement. This Agreement shall
remain in force until the second anniversary of the date upon which this
Agreement was executed by the parties hereto, and from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
by (a) a majority of the Trustees who are not interested persons of the Adviser
or (other than as Board members) of the Fund, cast in person at a meeting
called for the purpose of voting on such approval, and (b) either (i) the
Trustees or (ii) a majority of the outstanding voting securities of the Fund.
This Agreement may, on 60 days' written notice, be terminated at any time
without the payment of any penalty by the vote of a majority of the outstanding
voting securities of the Fund, by the Trustees or by the Adviser. Termination
of this Agreement shall not be deemed to terminate or otherwise invalidate any
provisions of any contract between the Adviser and any other series of the
Trust. This Agreement shall automatically terminate in the event of its
assignment. In interpreting the provisions of this Section 12, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"assignment," "interested person" and "voting security") shall be applied.
13. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment, transfer, assignment,
sale, hypothecation or pledge of this Agreement shall be effective until
approved by (a) the Trustees, including a majority of the Trustees who are not
interested persons of the Adviser or (other than as Trustees) of the Fund, cast
in person at a meeting called for the purpose of voting on such approval, and
(b) a majority of the outstanding voting securities of the Fund, as defined in
the 1940 Act.
14. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts.
15. Severability. The provisions of this Agreement are independent of and
separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue
8
<PAGE> 9
of the fact that for any reason any other or others of them may be deemed
invalid or unenforceable in whole or in part.
16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The name John Hancock Intermediate Maturity
Government Fund is a series designation of the Trustees under the Trust's
Declaration of Trust. The Declaration of Trust has been filed with the
Secretary of State of The Commonwealth of Massachusetts. The obligations of
the Fund are not personally binding upon, nor shall resort be had to the
private property of, any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the Fund's property shall be bound. The Fund
shall not be liable for the obligations of any other series of the Trust.
9
<PAGE> 10
Yours very truly,
JOHN HANCOCK BOND FUND
on behalf of John Hancock Intermediate
Maturity Government Fund
By:____________________________________
Title:_________________________________
The foregoing contract
is hereby agreed to as
of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By:_______________________
Title:____________________
10
<PAGE> 1
EXHIBIT 11
June 13, 1995
John Hancock Bond Fund
101 Huntington Avenue
Boston, MA 02199
Ladies and Gentlemen:
In connection with the filing of a registration statement
under the Securities Act of 1993, as amended (the "Act"),
on Form N-14, with respect to the shares of beneficial
interest of John Hancock Bond Fund, a Massachusetts
business trust (the "Trust"), it is the opinion of the
undersigned that such shares of beneficial interest of the
Trust when issued will be legally issued, fully paid and
nonassessable, assuming that the Trust receives proper
consideration therefore in accordance with the provisions
of the Trust's Declaration of Trust as Amended and By-Laws
and subject to compliance with the Act, the Investment
Company Act of 1940, as amended, and the applicable state
laws regarding the offer and sale of securities.
In connection with this opinion it should be noted that
under Massachusetts law, shareholders of a Massachusetts
business trust may be held personally liable for the
obligations of the Trust. However, the Trust's Declaration
of Trust disclaims shareholder liability for obligations of
the Trust and indemnifies any shareholder of the Trust,
with such indemnification to be paid solely out of the
assets of the Trust. Therefore, the shareholder's risk is
limited to circumstances in which the assets of the Trust
are insufficient to meet the obligations asserted against
such assets.
The undersigned hereby consents to the filing of a copy of
this opinion, as an exhibit to the Trust's registration
statement on Form N-14, with the Securities and Exchange
Commission and with the various state securities
administrators.
Sincerely,
JOHN HANCOCK ADVISERS, INC.
/s/ Thomas H. Connors
Thomas H. Connors
Assistant Secretary
Member of Massachusetts Bar
<PAGE> 1
EXHIBIT 12
, 1995
-----------------
FORM OF OPINION
Board of Trustees
John Hancock Bond Fund, on behalf of
John Hancock U.S. Government Trust and
John Hancock Adjustable U.S. Government Trust
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Members of the Board of Trustees:
You have requested our opinion regarding the federal income tax
consequences of the acquisition by John Hancock Adjustable U.S. Government
Trust (as proposed to be renamed, John Hancock Intermediate Maturity
Government Fund) ("Acquiring Fund"), a series of John Hancock Bond Fund (the
"Trust"), of all of the assets of John Hancock U.S. Government Trust
("Acquired Fund"), a separate series of the Trust, in exchange solely for (i)
the assumption by Acquiring Fund of all of the liabilities of Acquired Fund
and (ii) the issuance of Class A and Class B voting shares of beneficial
interest of Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund,
followed by the distribution by Acquired Fund, in liquidation of Acquired
Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund and
the termination of Acquired Fund (the foregoing together constituting the
"reorganization" or the "transaction").
In rendering this opinion, we have examined and relied upon (i) the
prospectus for the Class A and Class B shares of Acquired Fund, dated May 15,
1995, (ii) the statement of additional information for the Class A and Class B
shares of Acquired Fund, dated May 15, 1995, (iii) the prospectus for the
Class A and Class B shares of Acquiring Fund, dated September 22, 1995, (iv)
the statement of additional information for the Class A and Class B shares of
Acquiring Fund, dated September 22, 1995, (v) the registration statement on
Form N-14 of the Trust relating to the transaction (the "Registration
Statement") filed with the Securities and Exchange Commission (the "SEC") on
June __, 1995, (vi) the proxy statement/prospectus relating to the transaction
(the "Proxy Statement") included in the Registration Statement,
<PAGE> 2
Board of Trustees
John Hancock Bond Fund
____________, 1995
Page 2
(vii) the Agreement and Plan of Reorganization, dated as of __________, 1995,
between the Trust on behalf of Acquiring Fund and the Trust on behalf of
Acquired Fund (the "Agreement"), (viii) the representation letters on behalf
of Acquiring Fund and Acquired Fund referred to below and (ix) such other
documents as we deemed appropriate. We have assumed that all parties to the
Agreement and to other documents relating to the transaction have acted and
will act in accordance with the terms of the Agreement and such other
documents.
The conclusions expressed herein represent our judgment regarding the
proper treatment of Acquiring Fund, Acquired Fund and the shareholders of
Acquired Fund on the basis of our analysis of the Internal Revenue Code of
1986, as amended (the "Code"), case law, Treasury regulations and the rulings
and other pronouncements of the Internal Revenue Service (the "Service") which
exist at the time this opinion is rendered, all of which are subject to
prospective or retroactive change. Our opinion represents our best judgment
regarding the issues presented and is not binding upon the Service or any
court. Moreover, our opinion does not provide any assurance that a position
taken in reliance on such opinion will not be challenged by the Service and
does not constitute any representation or warranty that such position, if so
challenged, will not be rejected by a court.
Acquiring Fund is a series of a business trust, the Trust, which was
established under the laws of The Commonwealth of Massachusetts in 1984 and is
registered as an open-end investment company under the Investment Company Act
of 1940, as amended (the "1940 Act"). The Trust has several separate series
(including Acquiring Fund and Acquired Fund) and may create additional series
in the future. Each series of the Trust has separate assets and liabilities
from those of each other series. Each such series is treated as a separate
corporation and regulated investment company pursuant to Section 851(h) of the
Code.
Acquiring Fund commenced operations on December 31, 1991. Until
recently, the investment objective of Acquiring Fund was to earn a high level
of current income, consistent with low volatility of principal. Acquiring
Fund historically sought to achieve this investment objective by investing all
of its assets in a diversified, open-end management company (the "Master
Fund") with the same investment objective and investment restrictions as
Acquiring Fund, which pursued its investment objective by investing
substantially all of its assets in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities").
In connection with the transaction, the Trust's Board of Trustees proposed
that
<PAGE> 3
Board of Trustees
John Hancock Bond Fund
____________, 1995
Page 3
(1) the Master Fund be completely liquidated and terminated and its assets and
liabilities be transferred to Acquiring Fund in such liquidation; (2)
Acquiring Fund's investment objective and policies be modified in certain
respects; and (3) the name of Acquiring Fund be changed to John Hancock
Intermediate Maturity Government Fund, effective as of [the closing of the
reorganization.] These proposals were adopted at a meeting of Acquiring Fund
shareholders held on , 1995 and the proposals have now been
consummated. Consequently, Acquiring Fund's investment objective is now to
earn a high level of current income consistent with preservation of capital
and maintenance of liquidity, and, under normal circumstances, at least 65% of
Acquiring Fund's assets will be invested directly in U.S. Government
securities.
Acquired Fund, a separate series of the Trust, commenced operations on
December 31, 1984. Acquired Fund's investment objective is to seek a high
level of current income, consistent with safety of principal. Acquired Fund
seeks to achieve its investment objective by investing in U.S. Government
securities. Under normal circumstances, at least 80% of Acquired Fund's total
assets are invested in U.S. Government securities.
The steps to be taken in the reorganization, as set forth in the
Agreement, will be as follows:
(i) Acquired Fund will transfer to Acquiring Fund all of its assets
(consisting, without limitation, of portfolio securities and instruments,
dividend and interest receivables, cash and other assets). In exchange for
the assets transferred to it, Acquiring Fund will (A) assume all of the
liabilities of Acquired Fund (comprising all of its known and unknown
liabilities and referred to hereinafter as the "Acquired Fund Liabilities")
and (B) issue Acquiring Fund Shares to Acquired Fund that have an aggregate
net asset value equal to the value of the assets transferred to Acquiring
Fund by Acquired Fund, less the value of the Acquired Fund Liabilities assumed
by Acquiring Fund.
(ii) Promptly after the transfer of its assets to Acquiring Fund,
Acquired Fund will distribute in liquidation the Acquiring Fund Shares it
receives in the exchange to Acquired Fund shareholders pro rata in exchange
for their surrender of their shares of Acquired Fund ("Acquired Fund Shares").
In these exchanges, holders of Acquired Fund Shares designated as Class A
("Class A Acquired Fund Shares") will receive Acquiring Fund Shares designated
as Class A ("Class A Acquiring Fund Shares"), and holders of Acquired Fund
Shares designated as Class B
<PAGE> 4
Board of Trustees
John Hancock Bond Fund
____________, 1995
Page 4
("Class B Acquired Fund Shares") will receive Acquiring Fund Shares designated
as Class B ("Class B Acquiring Fund Shares").
(iii) After such exchanges, liquidation and distribution, the
existence of Acquired Fund will be promptly terminated in accordance with
Massachusetts law.
The Agreement and the transactions contemplated thereby were approved
by the Board of Trustees of the Trust on behalf of each of Acquiring Fund and
Acquired Fund at a meeting held on May 16, 1995, subject to the approval of
the shareholders of Acquired Fund. Acquiring Fund shareholders are not
required and were not asked to approve the transaction. Acquired Fund
shareholders approved the transaction at a meeting held on , 1995.
Massachusetts law does not provide dissenters' rights for Acquired
Fund shareholders in the transaction. Additionally, it is the position of the
Division of Investment Management of the SEC that appraisal rights, in
contexts such as the reorganization, are inconsistent with Rule 22c-1 under
the 1940 Act and are therefore preempted and invalidated by such rule.
Consequently, Acquired Fund shareholders will not have dissenters' or
appraisal rights in the transaction.
Our opinions set forth below are subject to the following factual
assumptions being true on the date the transaction is consummated, i.e., the
date of this opinion letter. Authorized representatives of Acquiring Fund and
Acquired Fund have represented to us by letters of even date herewith that the
following assumptions are true on this date:
(a) Acquiring Fund has no plan or intention to redeem or otherwise
reacquire any of the Acquiring Fund Shares received by shareholders of
Acquired Fund in the transaction except in connection with its legal
obligation under Section 22(e) of the 1940 Act as a registered open-end
investment company to redeem its own shares.
(b) After the transaction, Acquiring Fund will continue the historic
business of Acquired Fund and will use all of the assets acquired from
Acquired Fund in the ordinary course of a business.
(c) Acquiring Fund has no plan or intention to sell or otherwise
dispose of any assets of Acquired Fund acquired in the transaction, except for
dispositions made in the ordinary course of its business or to maintain its
qualification as a regulated investment company under Subchapter M of the
Code.
<PAGE> 5
Board of Trustees
John Hancock Bond Fund
____________, 1995
Page 5
(d) The shareholders of Acquiring Fund and the shareholders of
Acquired Fund will bear their respective expenses, if any, in connection with
the transaction.
(e) Acquiring Fund and Acquired Fund will each bear its own expenses
incurred in connection with the transaction. If any liabilities of Acquired
Fund attributable to such expenses remain unpaid on the closing date of the
transaction and are assumed by Acquiring Fund in the transaction, the amount
assumed will be attributable to Acquired Fund's expenses that are solely and
directly related to the transaction in accordance with the guidelines
established in Rev. Rul. 73-54, 1973-1 C.B. 187.
(f) There is no indebtedness between Acquiring Fund and Acquired
Fund.
(g) Acquired Fund has elected to be treated as a regulated investment
company under Subchapter M of the Code, has qualified as a regulated
investment company for each taxable year since its inception, and qualifies as
such for its final taxable year ending on the closing date of the transaction.
(h) Acquiring Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code, has qualified as a
regulated investment company for each taxable year since its inception, and
qualifies as such as of the date of the transaction.
(i) Neither Acquiring Fund nor Acquired Fund is under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(j) Acquiring Fund does not own and since its inception has not
owned, directly or indirectly, any shares of Acquired Fund.
(k) Acquiring Fund will not pay cash in lieu of fractional shares in
connection with the transaction.
(l) As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of
Acquired Fund is approximately equal to the fair market value of the assets of
Acquired Fund received by Acquiring Fund, minus the value of the Acquired Fund
Liabilities assumed by Acquiring Fund.
(m) Acquired Fund shareholders will not be in control (within the
meaning of Sections 368(a)(2)(H) and 304(c) of the Code, which provide that
control means the ownership of shares
<PAGE> 6
Board of Trustees
John Hancock Bond Fund
____________, 1995
Page 6
possessing at least 50% of the total combined voting power of all classes of
shares that are entitled to vote or at least 50% of the total value of shares
of all classes) of Acquiring Fund after the transaction).
(n) The principal business purposes of the transaction are to combine
the assets of Acquiring Fund and Acquired Fund in order to capitalize on
economies of scale in expenses such as the costs of accounting, legal,
transfer agency, insurance, custodial, and administrative services and to
increase diversification.
(o) As of the date of the transaction, the fair market value of the
Class A Acquiring Fund Shares received by each holder of Class A Acquired Fund
Shares is approximately equal to the fair market value of the Class A Acquired
Fund Shares surrendered by such shareholder, and the fair market value of the
Class B Acquiring Fund Shares received by each holder of Class B Acquired Fund
Shares is approximately equal to the fair market value of the Class B
Acquired Fund Shares surrendered by such shareholder.
(p) There is no plan or intention on the part of any shareholder of
Acquired Fund that owns beneficially 5% or more of the Acquired Fund Shares
and, to the best knowledge of management of Acquired Fund, there is no plan or
intention on the part of the remaining shareholders of Acquired Fund to sell,
redeem, exchange or otherwise dispose of a number of the Acquiring Fund Shares
received in the transaction that would reduce the aggregate ownership of the
Acquiring Fund Shares by former Acquired Fund shareholders to a number of
shares having a value, as of the date of the transaction, of less than fifty
percent (50%) of the value of all of the formerly outstanding Acquired Fund
Shares as of the same date. Shares of Acquired Fund and Acquiring Fund held
by Acquired Fund shareholders and otherwise sold, redeemed, exchanged or
disposed of prior or subsequent to the transaction as part of the plan of
reorganization are taken into account for purposes of this representation.
(q) Acquired Fund assets transferred to Acquiring Fund comprise at
least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held
by Acquired Fund immediately prior to the transaction. For purposes of this
representation, amounts used by Acquired Fund to pay its outstanding
liabilities, including reorganization expenses, and all redemptions and
distributions (except for redemptions in the ordinary course of business upon
demand of a shareholder that Acquired Fund is required to make as an open-end
investment company pursuant to Section 22(e) of the 1940 Act and regular,
normal dividends, which
<PAGE> 7
Board of Trustees
John Hancock Bond Fund
____________, 1995
Page 7
dividends include any final distribution of previously undistributed
investment company taxable income and net capital gain for Acquired Fund's
final taxable year ending on the closing date of the transaction) made by
Acquired Fund immediately preceding the transaction are taken into account as
assets of Acquired Fund held immediately prior to the transaction.
(r) The Acquired Fund Liabilities assumed by Acquiring Fund plus the
liabilities, if any, to which the transferred assets are subject were incurred
by Acquired Fund in the ordinary course of its business or are expenses of the
transaction.
(s) The fair market value of the Acquired Fund assets transferred to
Acquiring Fund equals or exceeds the sum of the Acquired Fund Liabilities
assumed by Acquiring Fund and the amount of liabilities, if any, to which the
transferred assets are subject.
(t) The total adjusted basis of the Acquired Fund assets transferred
to Acquiring Fund equals or exceeds the sum of the Acquired Fund Liabilities
assumed by Acquiring Fund and the amount of liabilities, if any, to which the
transferred assets are subject.
(u) Acquired Fund does not pay compensation to any
shareholder-employee.
(v) Acquired Fund has no outstanding warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire Acquired Fund Shares.
On the basis of and subject to the foregoing and in reliance upon the
representations described above, we are of the opinion that
(a) The acquisition by Acquiring Fund of all of the assets of
Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to
Acquired Fund and the assumption of all of the Acquired Fund Liabilities by
Acquiring Fund, followed by the distribution by Acquired Fund, in liquidation
of Acquired Fund, of Acquiring Fund Shares to Acquired Fund shareholders in
exchange for their Acquired Fund Shares and the termination of Acquired Fund,
will constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code. Acquiring Fund and Acquired Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code).
<PAGE> 8
Board of Trustees
John Hancock Bond Fund
____________, 1995
Page 8
(b) No gain or loss will be recognized by Acquired Fund upon (i) the
transfer of all of its assets to Acquiring Fund solely in exchange for the
issuance of Acquiring Fund Shares to Acquired Fund and the assumption of all
of the Acquired Fund Liabilities by Acquiring Fund and (ii) the distribution
by Acquired Fund of such Acquiring Fund Shares to the shareholders of Acquired
Fund (Sections 361(a) and 361(c) of the Code).
(c) No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Acquired Fund solely in exchange for the issuance of
Acquiring Fund Shares to Acquired Fund and the assumption of all of the
Acquired Fund Liabilities by Acquiring Fund (Section 1032(a) of the Code).
(d) The basis of the assets of Acquired Fund acquired by Acquiring
Fund will be, in each instance, the same as the basis of such assets in the
hands of Acquired Fund immediately prior to the transfer (Section 362(b) of
the Code).
(e) The tax holding period of the assets of Acquired Fund in the
hands of Acquiring Fund will, in each instance, include Acquired Fund's tax
holding period for those assets (Section 1223(2) of the Code).
(f) The shareholders of Acquired Fund will not recognize gain or loss
upon the exchange of all of their Acquired Fund Shares solely for Acquiring
Fund Shares as part of the transaction (Section 354(a)(l) of the Code).
(g) The basis of the Acquiring Fund Shares received by the Acquired
Fund shareholders in the transaction will be the same as the basis of the
Acquired Fund Shares surrendered in exchange therefor (Section 358(a)(1) of
the Code).
(h) The tax holding period of the Acquiring Fund Shares received by
Acquired Fund shareholders will include, for each shareholder, the tax holding
period for the Acquired Fund Shares surrendered in exchange therefor, provided
the Acquired Fund Shares were held as capital assets on the date of the
exchange (Section 1223(1) of the Code).
No opinion is expressed or implied regarding the federal income tax
consequences to Acquiring Fund, Acquired Fund or Acquired Fund shareholders of
any conditions existing at the time of, effects resulting from, or other
aspects of the transaction except as expressly set forth above.
Very truly yours,
Hale and Dorr
<PAGE> 1
Exhibit 14
----------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Proxy Statement and Prospectus and to the use, in this Registration Statement
(Form N-14) dated June 14, 1995, of our report on the financial statements and
financial highlights of John Hancock U.S. Government Trust, a series of John
Hancock Bond Fund, dated May 15, 1995 and our report on the financial
statements and financial highlights of John Hancock Adjustable U.S. Government
Trust, a series of John Hancock Bond Fund, dated May 15, 1995.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
June 9, 1995
<PAGE> 1
Exhibit 17.1
------------
Registration No. 2-66906
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM N-1
REGISTRATION STATEMENT UNDER / X /
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No . / /
Post-Effective Amendment No. 6 / X /
and
REGISTRATION STATEMENT UNDER / X /
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 8
(Check appropriate box or boxes)
___________________________
INVESTMENT QUALITY INTEREST, INC.
(Exact name of registrant as specified in charter)
333 Clay Street, Suite 4300
Houston, Texas 77002
(Address of principal executive offices)
Registrant's Telephone Number -- (713) 751-2400
Thomas R. Powers
333 Clay Street, Suite 4300
Houston, Texas 77002
(Name and Address of Agent for Service)
Copies to:
Kenneth S. Gerstein, Esq. Robert L. Stillwell, Esq.
Gordon Hurwitz Butowsky Weitzen Baker & Bots
Shalov & Wein 3000 One Shell Plaza
101 Park Avenue Suite 3121
New York, NY 10178 Houston, Texas 77002
<PAGE> 2
Approximate date of commencement of proposed public offering: as soon
as practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective:
On August 1, 1984 pursuant to paragraph (a) of rule 485.
_________________________________
Registrant has previously elected, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, to register an indefinite number of shares of
its common stock for sale under the Securities Act of 1933 and filed its Notice
on May 24, 1984.
<PAGE> 1
EXHIBIT 17.2
JOHN HANCOCK
U.S. GOVERNMENT
TRUST
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 15, 1995
<TABLE>
- ---------------------------------------------------------------------------------------------
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Investment Objective and Policies..................................................... 4
Organization and Management of the Fund............................................... 8
Alternative Purchase Arrangements..................................................... 9
The Fund's Expenses................................................................... 10
Dividends and Taxes................................................................... 11
Performance........................................................................... 12
How to Buy Shares..................................................................... 13
Share Price........................................................................... 15
How to Redeem Shares.................................................................. 20
Additional Services and Programs...................................................... 22
Investments, Techniques and Risk Factors.............................................. 26
</TABLE>
This Prospectus sets forth the information about John Hancock U.S. Government
Trust (the "Fund"), a diversified series of John Hancock Bond Fund (the
"Trust"), that you should know before investing. Please read and retain it for
future reference.
Additional information about the Fund and the Trust has been filed with the
Securities and Exchange Commission (the "SEC"). You can obtain a copy of the
Fund's Statement of Additional Information, dated May 15, 1995 and incorporated
by reference into this Prospectus, free of charge by writing or telephoning:
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts
02205-9116, 1-800-225-5291 (1-800-554-6713 TDD).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 2
<TABLE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses for the Fund's fiscal
year ended March 31, 1994, adjusted to reflect current sales charges. The
operating expenses for Class B shares are estimates. Actual fees and expenses in
the future of the Class A and Class B shares may be greater or less than those
indicated.
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price)....................... 4.50% None
Maximum sales charge imposed on reinvested dividends................................................ None None
Maximum deferred sales charge....................................................................... None * 5.00%
Redemption fee+..................................................................................... None None
Exchange fee........................................................................................ None None
ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets)
Management fee...................................................................................... 0.65% 0.65%
12b-1 fee**......................................................................................... 0.25% 1.00%
Other expenses***................................................................................... 0.51% 0.51%
Total Fund operating expenses....................................................................... 1.41% 2.16%
<FN>
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed, as described below under the caption "Share Price,"
in the event of certain redemption transactions within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses.
*** Other Expenses include transfer agent, legal, audit, custody and other
expenses.
+ Redemption by wire fee (currently $4.00) not included.
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return:
Class A Shares............................................................... $ 59 $88 $ 119 $206
Class B Shares
-- Assuming complete redemption at end of period......................... $ 72 $98 $ 136 $230
-- Assuming no redemption................................................ $ 22 $68 $ 116 $230
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE> 3
<TABLE>
THE FUND'S FINANCIAL HIGHLIGHTS
The information in the following table of financial highlights for each of the
periods ended March 31, 1994, and prior, has been audited by Ernst & Young LLP,
the Fund's independent auditors, whose unqualified report is included in the
Statement of Additional Information. The financial highlights for the six month
period ended September 30, 1994 are unaudited. Further information about the
performance of the Class A shares of the Fund is contained in the Fund's Annual
and Semi-Annual Reports to shareholders which may be obtained free of charge by
writing or telephoning John Hancock Investor Services Corporation ("Investor
Services"), at the address or telephone number listed on the front page of this
Prospectus. No information is shown for Class B shares since no Class B shares
were outstanding during the periods presented.
Selected data for Class A shares is as follows:
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED PERIOD
SEPTEMBER 30, ENDED
1994(4) MARCH 31,
(UNAUDITED) 1994 1993 1992(3) 1991 1990 1989 1988 1987 1986(1)
------------- ------- ------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share income and
capital changes for
a share outstanding
during each period:
Net asset value,
beginning of period... $ 7.98 $ 8.49 $ 8.16 $ 8.34 $ 8.18 $ 8.38 $ 8.88 $ 9.64 $ 10.18 $ 10.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment income.. 0.28 0.58 0.61 0.87 0.90 0.89 0.84 0.76 0.71 0.23
Net realized and
unrealized gain (loss)
on securities......... (0.36) (0.48) 0.43 (0.22) 0.11 (0.24) (0.45) (0.53) (0.14) 0.25
------- ------- ------- ------- -------- -------- -------- -------- -------- -------
Total from Investment
Operations............ (0.08) 0.10 1.04 0.65 1.01 0.65 0.39 0.23 0.57 0.48
LESS DISTRIBUTIONS
Dividends from net
investment income..... (0.28) (0.61) (0.71) (0.83) (0.85) (0.85) (0.84) (0.76) (0.71) (0.23)
Distributions from
realized gains........ (0.01) -- -- -- -- -- (0.05) (0.23) (0.40) (0.07)
------- ------- ------- ------- -------- -------- -------- -------- -------- -------
Total Distributions.... (0.29) (0.61) (0.71) (0.83) (0.85) (0.85) (0.89) (0.99) (1.11) (0.30)
------- ------- ------- ------- -------- -------- -------- -------- -------- -------
Net asset value,
end of period......... $ 7.61 $ 7.98 $ 8.49 $ 8.16 $ 8.34 $ 8.18 $ 8.38 $ 8.88 $ 9.64 $ 10.18
======= ======= ======= ======= ======== ======== ======== ======== ======== =======
TOTAL RETURN........... (0.94)% 1.05% 13.13% 8.05% 13.04% 7.83% 4.52% 2.70% 6.00% 4.77%
======= ======= ======= ======= ======== ======== ======== ======== ======== =======
RATIOS AND
SUPPLEMENTAL DATA
Ratio of operating
expenses to
average net assets.... 0.76% 1.37% 1.31% 1.08% 1.13% 1.08% 1.05% 1.04% 0.99% 0.33%
Ratio of interest
expense to
average net assets.... 0.06% 0.04% -- 0.17% -- -- -- -- -- --
------- ------- ------- ------- -------- -------- -------- -------- -------- -------
Ratio of total
expenses to
average net assets.... 0.82% 1.41% 1.31% 1.25% 1.13% 1.08% 1.05% 1.04% 0.99% 0.33%
Ratio of expense
reduction to
average net assets.... -- -- -- -- -- -- -- -- -- (0.27)%
------- ------- ------- ------- -------- -------- -------- -------- -------- -------
Ratio of net expenses
to average net
assets................ -- 1.41% 1.31% 1.25% 1.13% 1.08% 1.05% 1.04% 0.99% 0.06%
======= ======= ======= ======= ======== ======== ======== ======== ======== =======
Ratio of net
investment income
to average net
assets................ 3.62% 6.86% 7.07% 10.48% 10.72% 10.46% 9.95% 8.29% 7.18% 2.34%
Portfolio turnover..... 255% 264% 342% 179% 154% 244% 195% 84% 364% 75%
Net Assets,
end of period
(in thousands)........ $21,367 $23,740 $18,159 $21,184 $123,493 $154,472 $167,513 $266,213 $351,754 $50,959
Debt outstanding
at end of year
(in thousands)(2)..... $ 0 $ 0 -- $ 0 -- -- -- -- -- --
Average daily amount
of debt outstanding
during the year (in
thousands)(2)......... $ 739 $ 341 -- $ 4,172 -- -- -- -- -- --
Average monthly number
of shares outstanding
during the year (in
thousands)........... 2,849 2,604 -- 13,081 -- -- -- -- -- --
Average daily amount
of debt outstanding
per share during
the year(2).......... $ 0.26 $ 0.13 -- $ 0.32 -- -- -- -- -- --
<FN>
- ---------------
(1) Financial highlights are for the period from December 31, 1984 (the date of
the Fund's initial offering of shares to the public) to March 31, 1986 and
have not been annualized.
(2) Debt outstanding consists of reverse repurchase agreements entered into
during the year.
(3) Per share information has been calculated using the average number of shares
outstanding.
(4) Financial highlights, including total return, have not been annualized.
* Total return does not include the effect of the initial sales charge for Class A Shares.
</TABLE>
3
<PAGE> 4
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek a high level of current income,
consistent with safety of principal. The Fund seeks to achieve its investment
objective by investing in debt obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities").
Because of the uncertainty inherent in all investments, no assurance can be
given that the Fund will achieve its investment objective. U.S. Government
securities consist of the following:
- -------------------------------------------------------------------------------
THE FUND SEEKS TO PROVIDE A HIGH LEVEL OF
CURRENT INCOME CONSISTENT WITH SAFETY OF
PRINCIPAL.
- -------------------------------------------------------------------------------
(1) U.S. Treasury obligations, which differ only in their interest rates,
maturities and times of issuance, including U.S. Treasury bills (maturity of
one year of less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities greater than ten years); and
(2) Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities which are supported by: (i) the full faith and credit of
the U.S. Government (e.g., securities issued by the Government National
Mortgage Association ("GNMA")); (ii) the right of the issuer to borrow an
amount limited to a specific line of credit from the U.S. Government (e.g.,
securities of the Federal Home Loan Bank Board); or (iii) the credit of the
instrumentality (e.g., bonds issued by the Federal National Mortgage
Association ("FNMA")).
U.S. Government securities include collateralized mortgage obligations ("CMOs")
issued and guaranteed by a U.S. Government agency and U.S. Treasury securities
originally issued in the form of a face-amount only security paying no interest
("U.S. Government Zero Coupon Securities"), each as described below.
While as a non-fundamental investment policy, the Fund invests at least 80% of
its total assets in U.S. Government securities, it is currently anticipated that
a substantial portion of the Fund's assets may be invested in mortgage
pass-through securities set forth in (2) above. However, the Fund has undertaken
to limit (within its 80% limitation) its investment in U.S. Government
securities to those that are backed by the full faith and credit of the U.S.
Government with not less than 65% of its total assets being invested in GNMA
securities. Such undertaking may not be terminated or modified without 60 days
prior written notice having been mailed to shareholders.
Types of mortgage-backed securities include pass-through securities issued or
guaranteed by GNMA, FNMA and the Federal Home Loan Mortgage Corporation
("FHLMC"). Although these mortgage-backed securities are guaranteed or issued by
U.S. Government agencies or instrumentalities, FNMA and FHLMC securities are not
backed by the "full faith and credit" of the U.S. Government. In such cases, the
Fund must look principally to the agency issuing or guaranteeing the security
for ultimate payment. Mortgage pass-through securities are securities
representing interest in "pools" of mortgage loans. Monthly payments of interest
and principal by the individual borrowers on mortgages are passed through to the
holders of the securities (net of fees paid to the issuer or guarantor of the
securities) as the mortgages in the underlying mortgage pools are paid off. The
4
<PAGE> 5
average lives of the mortgage pass-through securities are variable when issued
because their average lives depend on prepayment rates. The average life of
these securities is likely to be substantially shorter than their stated final
maturity as a result of unscheduled principal prepayments. Prepayments on
underlying mortgages result in a loss of anticipated interest, and all or part
of a premium, if any has been paid, and the actual yield (or total return) to
the Fund may be different than the quoted yield on the securities. Mortgage
prepayments generally increase with falling interest rates and decrease with
rising interest rates. Like other fixed income securities, when interest rates
rise the value of a mortgage pass-through security generally will decline;
however, when interest rates are declining, the value of mortgage pass-through
securities with prepayment features may not increase as much as that of other
fixed income securities. In cases where U.S. Government support of agencies or
instrumentalities is discretionary, no assurance can be given that the U.S.
Government will provide financial support, since it is not legally obligated to
do so.
The Fund may acquire stripped mortgage-backed securities which are issued and
guaranteed by U.S. Government agencies or instrumentalities. For example, Class
1 and Class 2 stripped mortgage-backed securities ("SMBS Certificates") are
issued by FNMA. Since Class 1 Certificates generally benefit from declining
interest rates and Class 2 Certificates generally benefit from rising interest
rates, these securities can provide an effective way to stabilize portfolio
value. SMBS Certificates represent beneficial interests in principal
distributions and interest distributions on certain FNMA guaranteed mortgage
pass-through Certificates which represent all or part of the beneficial
interests in pools of first lien, single family (one-to-four family residential
property), fixed-rate residential mortgage loans. The original principal amount
of each SMBS Class 1 Certificate represents the amount payable over the life of
the Certificate from the principal distributions on the underlying
mortgage-backed securities held by FNMA in its capacity as Trustee of the SMBS
trust. Interest distributions allocable to the SMBS Class 2 Certificates consist
of interest at the pass-through rate specified on the aggregate amount thereof
which will always be equal to the aggregate outstanding principal amount of each
associated issue of SMBS Class 1 Certificates.
The Fund may invest a portion of its assets in collateralized mortgage
obligations or "CMOs", which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities (such collateral collectively herein
referred to as "Mortgage Assets"). Mortgage Assets underlying CMOs purchased by
the Fund must be U.S. Government securities. The Fund may also invest a portion
of its assets in multi-class pass-through securities which are issued or
guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities. Unless the context indicates otherwise, all references herein
to CMOs include multi-class pass-through securities. Payments of principal and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multi-class pass-through securities.
5
<PAGE> 6
In a CMO, a series of bonds or certificates is usually issued in multiple
classes with different maturities. Each class of CMO, often referred to as a
"tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates, resulting in a loss of all
or part of the premium, if any has been paid. The CMO classes in which the Fund
may invest include sequential and parallel pay CMOs, including planned
amortization class ("PAC") and target amortization class ("TAC") securities.
In addition to the risks associated with prepayments previously described,
prepayment on the Mortgage Assets can be expected to accelerate during periods
of declining interest rates and thus impair the Fund's ability to reinvest the
proceeds in securities with comparable yields. In addition, the U.S. Government
guarantee as to payment of principal and interest of the Fund's mortgage-backed
securities does not extend to the value or yield of such securities or the
Fund's shares of the beneficial interest. SMBS Certificates involve risks in
addition to those associated with regular mortgage-backed securities. A rate of
principal payments on the underlying mortgage loans slower than the rate
anticipated by an investor in calculating the initial yield to maturity on an
SMBS Certificate, which would result from stable or rising interest rates (which
would tend to reduce the market value of the Certificate), will, by delaying the
distribution of principal, reduce the yield to maturity on SMBS Class 1
Certificates (principal) purchased at a discount from their original principal
amount and increase the yield to maturity on SMBS Class 2 Certificates (income).
Payments of principal on the underlying mortgage loans at rates faster than the
rate anticipated by investors, which could result from falling interest rates or
from transfers of the underlying property, will, conversely, accelerate
distributions of principal and thereby reduce the yield to maturity on SMBS
Class 2 Certificates (income) and increase the yield to maturity on SMBS Class 1
Certificates (principal). Sufficiently high prepayment rates could result in
purchasers of SMBS Class 2 Certificates (income) not recovering the full amount
of their initial investment. Yields on SMBS Certificates will be extremely
sensitive to actual or anticipated prepayment experience on the underlying
mortgage loans and significant fluctuations in interest rates may result in
major fluctuations in the market value of such Certificates.
Mortgage-backed securities derive their value from an underlying investment
structure and accordingly are known as "derivatives." Derivatives (such as
stripped mortgage-backed securities) involve substantial risk including higher
price volatility and the possible lack of a readily available market. The Fund
may engage in a variety of investment techniques in an attempt to protect
against changes in the general level of interest rates. These techniques include
the sale of interest rate futures contracts as well as the purchase of call and
put options on such futures and the purchase of call and put options on debt
securities. These investment techniques and various policies the Fund may employ
in seeking to achieve its investment objective, such as lending its portfolio
securities, and committing to purchase securities for which the normal
settlement date for the transaction occurs later than the normal settlement date
for U.S. Treasury obligations, or securities subject to repurchase and reverse
repurchase agree-
6
<PAGE> 7
ments, may involve a greater degree of risk than those inherent in more
conservative investment approaches. As a matter of non-fundamental policy, the
Fund will, at all times, invest at least 80% of its total assets in U.S.
Government securities. This will serve to limit investments in put and call
options, futures and options on futures, and reverse repurchase agreements, in
the aggregate, to not more than 20% of the Fund's total assets. In addition, as
a fundamental policy, the Fund will not invest more than 10% of its total assets
in CMOs, zero coupon securities, SMBS, complex multiclass pass-through
securities and asset-backed securities. See "Investments, Techniques and Risk
Factors" for a discussion of these techniques and their associated risks.
The Fund's rate of return fluctuates, as does its net asset value per share.
These fluctuations depend largely on changes in the general level of interest
rates. An increase in interest rates will tend to reduce the market values of
securities in which the Fund invests and, therefore, the Fund's net asset value;
whereas a decline in interest rates will tend to increase their values. The Fund
will seek to reduce risks associated with changes in interest rates through its
transactions in options and futures contracts. However, these techniques will
not eliminate these risks and will result in transaction costs to the Fund.
The specific securities in which the Fund may invest, and the investment
policies which the Fund may employ, meet the criteria necessary to qualify the
shares of the Fund for purchase by the institutions designated as "qualifying
institutions." (See "Qualifying Institutions" in the Statement of Additional
Information.) In order to facilitate investment in the Fund by national banks,
the Fund has undertaken to refrain from investing in those obligations issued by
U.S. Government agencies or instrumentalities which a national bank may not
purchase without limitation (including, but not limited to obligations of the
Tennessee Valley Authority and obligations of the Commodity Credit Corporation
not fully guaranteed by the U.S. Government) unless 60 days' prior written
notice otherwise has been provided to shareholders.
See "Investments, Techniques and Risk Factors" for a further discussion of the
types of securities in which the Fund may invest, the management techniques it
may employ and the associated risk.
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information where they are classified as
fundamental or nonfundamental. The Fund's investment objective and fundamental
policies and restrictions may not be changed without the approval of the Fund's
shareholders. The Fund's non-fundamental investment policies and restrictions,
however, may be changed by a vote of the Trustees without shareholder approval.
Notwithstanding the Fund's fundamental investment restriction prohibiting
investments in other investment companies, the Fund may, pursuant to an order
granted by the SEC, invest in other investment companies in connection with a
deferred compensation plan for the noninterested Trustees of the John Hancock
funds. There can be no assurance that the Fund will achieve its investment
objective.
- -------------------------------------------------------------------------------
THE FUND FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
7
<PAGE> 8
The primary consideration in choosing brokerage firms to carry out the Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of Fund shares. Pursuant to procedures determined by
the Trustees, the Fund's investment adviser, John Hancock Advisers, Inc. (the
"Adviser"), may place securities transactions with brokers affiliated with the
Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company,
Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John
Hancock Mutual Life Insurance Company (the "Life Company"), which in turn
indirectly owns the Adviser.
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
- -------------------------------------------------------------------------------
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified series of the Trust, an open-end management investment
company organized as a Massachusetts business trust. The Trust has six series of
shares, one of which is the Fund. The Trust reserves the right to create and
issue a number of series of shares, or funds or classes thereof, which are
separately managed and have different investment objectives. The Trustees have
authorized the issuance of two classes of the Fund, designated Class A and Class
B. The shares of each class represent an interest in the same portfolio of
investments of the Fund. Each class has equal rights as to voting, redemption,
dividends and liquidation. However, each class bears different distribution and
transfer agent fees and other expenses. Also, Class A and Class B shareholders
have exclusive voting rights with respect to their distribution plans. The Trust
is not required to and does not intend to hold annual meetings of shareholders,
although special meetings may be held for such purposes as electing or removing
Trustees, changing fundamental policies or approving a management contract. The
Trust, under certain circumstances, will assist in shareholder communications
with other shareholders.
- -------------------------------------------------------------------------------
THE BOARD OF TRUSTEES ELECTS OFFICERS AND
RETAINS THE INVESTMENT ADVISER WHO IS
RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS
OF THE FUND, SUBJECT TO THE BOARD OF
TRUSTEES' POLICIES AND SUPERVISION.
- -------------------------------------------------------------------------------
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds, Inc.
("John Hancock Funds") distributes shares for all of the John Hancock mutual
funds through brokers which have arrangements with John Hancock Funds ("Selling
Brokers"). Certain Trust officers are also officers of the Adviser and John
Hancock Funds.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING AN AGGREGATE
NET ASSET VALUE OF MORE THAN $13 BILLION.
- -------------------------------------------------------------------------------
All investment decisions are made by a committee and no single person is
primarily responsible for making recommendations to the committee.
In order to avoid any conflict with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
preclearance for all personal trades and a ban on the purchase of initial public
offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
8
<PAGE> 9
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A shares) or on a contingent deferred basis (the "Contingent Deferred
Sales Charge Alternative," Class B shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
- -------------------------------------------------------------------------------
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
- -------------------------------------------------------------------------------
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount of your purchase is $1 million or more.
If you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS A SHARES ARE SUBJECT
TO AN INITIAL SALES CHARGE.
- -------------------------------------------------------------------------------
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
those of Class A shares. To the extent that any dividends are paid by the Fund,
these higher expenses will also result in lower dividends than those paid on
Class A shares.
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
Class B shares are not available for full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares, given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider whether,
during the anticipated life of your Fund investment, the CDSC and accumulated
fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time, and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on the inside cover page of this Prospectus shows examples of the
charges applicable to each class of shares. Class A shares will normally be more
beneficial if you qualify for reduced sales charges. See "Share
Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
- -------------------------------------------------------------------------------
9
<PAGE> 10
Class A shares are subject to lower distribution fees and, accordingly, pay
correspondingly higher dividends per share, to the extent any dividends are
paid. However, because initial sales charges are deducted at the time of
purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution and service fees and, for a six-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and ongoing distribution and service fees. In the
case of Class B shares, the expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the Class B
shares' CDSC and ongoing distribution and service fees are the same as those of
the Class A shares' initial sales charge and ongoing distribution and service
fees. Sales personnel distributing the Fund's shares may receive different
compensation for selling each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They also will be in the same
amount, except for differences resulting from each class bearing only its own
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee to
the Adviser which is based on a stated percentage of the Fund's average daily
net assets as follows:
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
- -----------------------------------------------------------------------------------
<S> <C>
First $200,000,000..................................................... 0.650%
Next $300,000,000...................................................... 0.625%
Amount over $500,000,000............................................... 0.600%
</TABLE>
During the Fund's fiscal year ended March 31, 1994, the advisory fee paid by the
Fund to the Fund's former investment adviser was equal to 0.65% of the Fund's
average daily net assets.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service fees
at an aggregate annual rate of up to 0.25% of the Class A shares' average daily
net
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
10
<PAGE> 11
assets and an aggregate annual rate of 1.00% of the Class B shares' average
daily net assets. In each case, up to 0.25% for Class A and Class B shares is
for service expenses and the remaining amount is for distribution expenses. The
distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of John
Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional
and overhead expenses incurred in connection with the distribution of Fund
shares; (iii) unreimbursed distribution expenses under the Fund's prior
distribution plans; (iv) distribution expenses incurred by other investment
companies which sell all or substantially all of their assets to, merge with or
otherwise engage in a reorganization transaction with the Fund; and (v) with
respect to Class B shares only, interest expenses on unreimbursed distribution
expenses. The service fees will be used to compensate Selling Brokers for
providing personal and account maintenance services to shareholders.
In the event John Hancock Funds is not fully reimbursed for payments made or
expenses incurred by it under the Class A Plan, these expenses will not be
carried beyond one year from the date they were incurred. Unreimbursed expenses
under the Class B Plan will be carried forward together with interest on the
balance of these unreimbursed expenses. No Class B shares were outstanding
during the fiscal year ended March 31, 1994.
Information on the Fund's total expenses appears in the Financial Highlights
section of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares daily and distributes monthly dividends
representing all or substantially all of its net investment income. The Fund
will distribute net realized long-term and short-term capital gains, if any, at
least annually.
- -------------------------------------------------------------------------------
THE FUND GENERALLY DECLARES DIVIDENDS
DAILY AND DISTRIBUTES THEM MONTHLY.
- -------------------------------------------------------------------------------
Dividends are reinvested in additional shares of your class unless you elect the
option to receive them in cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment option. Because of the higher expenses associated with Class B
shares, any dividends on these shares will be lower than those on the Class A
shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income and net short-term
capital gains are taxable to you as ordinary income and dividends from the
Fund's net long-term capital gains are taxable as long-term capital gains. These
dividends are taxable whether you take them in cash or reinvest in additional
shares. Certain dividends may be paid in January of a given year but may be
taxable as if you received them the previous December.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not be
subject to
11
<PAGE> 12
Federal income tax on any net investment income or net realized capital gains
that are distributed to its shareholders within the time period prescribed by
the Code. When you redeem (sell) or exchange shares, you may realize a taxable
gain or loss.
On the account application, you must certify that the social security or other
taxpayer identification number you provide is your correct number and that you
are not subject to backup withholding of Federal income tax. If you do not
provide this information or are otherwise subject to this withholding, the Fund
may be required to withhold 31% of your dividends and the proceeds of
redemptions or exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investment in and distributions from the Fund.
Non-U.S. shareholders and tax-exempt shareholders are subject to different tax
treatment not described above. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent the
Fund's distributions are derived from interest on (or, in the case of
intangibles taxes, the value of its assets is attributable to) certain U.S.
Government obligations, provided in some states that certain thresholds for
holdings of such obligations and/or reporting requirements are satisfied. You
should consult your tax adviser for specific tax advice.
PERFORMANCE
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30 day period by the maximum
offering price per share on the last day of that period. Yield is also
calculated according to accounting methods that are standardized for all stock
and bond funds. Because yield accounting methods differ from the methods used
for other accounting purposes, the Fund's yield may not equal the income paid on
shares or the income reported in the Fund's financial statements.
- -------------------------------------------------------------------------------
THE FUND MAY ADVERTISE ITS YIELD AND TOTAL
RETURN.
- -------------------------------------------------------------------------------
The Fund's total return shows the overall dollar or percentage change in value
of a hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period of
time. Average annual total return shows the cumulative return divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in "The Fund's
Financial Highlights"). Investments at a lower sales charge would result in
higher performance figures. Total return and yield calculations for Class B
shares reflect the deduction of the applicable CDSC imposed on a redemption of
shares held for the applicable period. All calculations assume that all
dividends are reinvested at net asset value on the reinvestment dates during the
periods. Total return and yield of Class A and Class B shares will be calculated
separately and, because each class is subject to different expenses, the total
return and yield may differ with
12
<PAGE> 13
respect to each class for the same period. The relative performance of the Class
A and Class B shares will be affected by a variety of factors, including the
higher operating expenses attributable to the Class B shares, whether the Fund's
investment performance is better in the earlier or later portions of the period
measured and the level of net assets of the classes during the period. The Fund
will include the total return of Class A and Class B shares in any advertisement
or promotional materials including Fund performance data. The value of Fund
shares, when redeemed, may be more or less than their original cost. Both yield
and total return are historical calculations and are not an indication of future
performance. See "Factors to Consider in Choosing an Alternative."
<TABLE>
HOW TO BUY SHARES
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
The minimum initial investment in Class A and Class B shares is $1,000 ($250 for
group investments and retirement plans). Complete the Account Application attached
to this Prospectus. Indicate whether you are purchasing Class A or Class B shares.
If you do not specify which class of shares you are purchasing, Investor Services
will assume that you are investing in Class A shares.
- --------------------------------------------------------------------------------------
OPENING AN ACCOUNT
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation ("Investor Services"), P.O. Box 9115, Boston, MA
02205-9115.
2. Deliver the completed application and check to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- --------------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock U.S. Government Trust
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
- --------------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application designating a
ACCUMULATION bank account from which funds may be drawn.
- --------------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES
- --------------------------------------------------------------------------------------
PROGRAM
(MAAP) 2. The amount you elect to invest will be automatically withdrawn
from your bank or credit union account.
- --------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections
on the Account Privileges Application designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, your account must be in a bank or credit
union that is a member of the Automated Clearing House system
(ACH).
- -------------------------------------------------------------------------------
BUYING ADDITIONAL
CLASS A AND CLASS B
SHARES (CONTINUED)
- -------------------------------------------------------------------------------
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which
your account is registered, the Fund name, the class of shares
you own, your account number, and the amount you wish to
invest.
4. Your investment normally will be credited to your account the
business day following your phone request.
- ---------------------------------------------------------------------------------
BY CHECK 1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, the class of share you own, your account
number and the name(s) in which the account is registered.
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
- ---------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock U.S. Government Trust
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
- ---------------------------------------------------------------------------------
Other Requirements: All purchases must be made in U.S. dollars. Checks written on
foreign banks will delay purchases until U.S. funds are received, and a collection
charge may be imposed. Shares of the Fund are priced at the offering price based
on the net asset value computed after Investor Services receives notification of
the dollar equivalent from the Fund's custodian bank. Wire purchases normally take
two or more hours to complete and, to be accepted the same day, must be received
by 4:00 P.M., New York time. Your bank may charge a fee to wire funds. Telephone
transactions are recorded to verify information. Certificates are not issued
unless a request is made in writing to Investor Services.
- ---------------------------------------------------------------------------------
</TABLE>
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and
automatic investment/withdrawal plans will be sent to you quarterly). A tax
information statement will be mailed to you by January 31 of each year.
- -------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
14
<PAGE> 15
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued on the basis of market quotations, valuations provided by
independent pricing services or at fair value as determined in good faith
according to procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost, which the Trustees have
determined approximates market value. The NAV is calculated once daily as of the
close of regular trading on the New York Stock Exchange (generally at 4:00 p.m.,
New York time) on each day that the Exchange is open.
- -------------------------------------------------------------------------------
THE OFFERING PRICE OF YOUR SHARES IS THEIR
NET ASSET VALUE PLUS A SALES CHARGE, IF
APPLICABLE, WHICH WILL VARY WITH THE
PURCHASE ALTERNATIVE YOU CHOOSE.
- -------------------------------------------------------------------------------
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the New York
Stock Exchange and transmit it to John Hancock Funds before its close of
business to receive that day's offering price.
<TABLE>
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
<CAPTION>
COMBINED
SALES CHARGE AS A REALLOWANCE REALLOWANCE TO
SALES CHARGE AS PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS
AMOUNT INVESTED A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF
(INCLUDING SALES CHARGE) OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*)
- ------------------------ --------------- ---------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00% 3.76%
$100,000 to $249,999 3.75% 3.90% 3.25% 3.01%
$250,000 to $499,999 2.75% 2.83% 2.30% 2.06%
$500,000 to $999,999 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
<FN>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. In addition to the reallowance allowed to all Selling Brokers,
John Hancock Funds will pay the following: round trip airfare to a resort
will be offered to each registered representative of a Selling Broker (if
the Selling Broker has agreed to participate) who sells certain amounts of
shares of John Hancock Funds. John Hancock Funds will make these incentive
payments out of its own resources. A Selling Broker to whom substantially
the entire sales charge is reallowed or who receives these incentives may
be deemed to be an underwriter under the Securities Act of 1933. Other
than distribution and service fees, the Fund does not bear distribution
expenses.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions within one year of purchase.
(***) John Hancock Funds may pay a commission and the first year's service fee
(as described in (+) below) to Selling Brokers who initiate and are
</TABLE>
15
<PAGE> 16
responsible for purchases of Class A shares of $1 million or more in
aggregate as follows: 1% on sales to $4,999,999, 0.50% on the next $5
million and 0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance in an amount equal to 0.25% of the net
assets invested in the Fund at the time of the sale. Thereafter, it pays
the service fee periodically in arrears in an amount up to 0.25% of the
Fund's average annual net assets. Selling Brokers receive the fee as
compensation for providing personal and account maintenance services to
shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
In addition, John Hancock Funds will pay certain affiliated Selling Brokers at
an annual rate of up to 0.05% of the daily net assets of accounts attributable
to these brokers.
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
<TABLE>
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
12 months after the end of the calendar month in which the purchase was made
(the CDSC period), a CDSC will be imposed. The rate of the CDSC will depend on
the amount invested as follows:
<CAPTION>
AMOUNT INVESTED CDSC RATE
--------------- ---------
<S> <C>
$1 million to $4,999,999............................................... 1.00%
Next $5 million to $9,999,999.......................................... 0.50%
Amounts of $10 million and over........................................ 0.25%
</TABLE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any distributions which have been reinvested in additional
shares.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charges" below.
16
<PAGE> 17
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $100,000 in
Class A shares of the Fund or a combination of funds within the John Hancock
family of funds (except money market funds), you may qualify for a reduced sales
charge on your investments in Class A shares through a LETTER OF INTENTION. You
may also be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE
to take advantage of the value of your previous investments in Class A shares of
the John Hancock funds in meeting the breakpoints for a reduced sales charge.
For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales
charge will be based on the total of:
- -------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE
ON YOUR INVESTMENT IN CLASS A SHARES.
- -------------------------------------------------------------------------------
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the previous day) of (a) all
Class A shares of the Fund you hold, and (b) all Class A shares of any other
John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
EXAMPLE:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $80,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 3.75% and not 4.50% (the
rate that would otherwise be applicable to investments of less than $100,000.
See "Initial Sales Charge Alternative -- Class A Shares.")
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
- - A Trustee or officer of the Fund; a Director or officer of the Adviser and its
affiliates or Selling Brokers; employees or sales representatives of any of
the foregoing; retired officers, employees or Directors of any of the
foregoing; a member of the immediate family of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
- -------------------------------------------------------------------------------
CLASS A SHARES MAY BE AVAILABLE WITHOUT A
SALES CHARGE TO CERTAIN INDIVIDUALS AND
ORGANIZATIONS.
- -------------------------------------------------------------------------------
- - Any state, county, city or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
- - A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
- - A broker, dealer or registered investment adviser that has entered into an
agreement with John Hancock Funds providing specifically for the use of Fund
shares in fee-based investment products made available to its clients.
17
<PAGE> 18
- - A former participant in an employee benefit plan with John Hancock Funds, when
he/she withdraws from his/her plan and transfers any or all of his/her plan
distributions directly to the Fund.
- ------------------
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without a sales charge so that your
entire initial investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates set forth below. This charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
shares being redeemed. Accordingly, you will not be assessed a CDSC on increases
in account value above the initial purchase price, including shares derived from
dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales Charges"
below.
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
<TABLE>
<S> <C>
- - Proceeds of 50 shares redeemed at $12 per share $ 600
- - Minus proceeds of 10 shares not subject to CDSC because they were
acquired through dividend reinvestment (10 X $12) -120
- - Minus appreciation on remaining shares, also not subject to CDSC (40 X
$2) - 80
------
- - Amount subject to CDSC $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
part of them to defray its expenses related to providing the Fund with
distribution services connected to the sale of Class B shares, such as
compensating Selling Brokers for selling these shares. The combination of the
CDSC and the distribution and service fees makes it possible for the Fund to
sell Class B shares without deducting a sales charge at the time of the
purchase.
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for the purposes of determining this holding period, any payments you make
18
<PAGE> 19
during the month will be aggregated and deemed to have been made on the last day
of the month.
<TABLE>
<CAPTION>
YEAR IN WHICH
CLASS B SHARES CONTINGENT DEFERRED SALES
REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC
- ------------------ ----------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- - Redemptions of Class B shares made under a Systematic Withdrawal Plan (see
"How to Redeem Shares"), as long as your annual redemptions do not exceed 10%
of your account value at the time you establish your Systematic Withdrawal
Plan and 10% of the value of your subsequent investments (less redemptions) in
that account at the time you notify Investor Services. This waiver does not
apply to Systematic Withdrawal Plan redemptions of Class A shares that are
subject to a CDSC.
- -------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON
CLASS B AND CERTAIN CLASS A SHARE
REDEMPTIONS WILL BE WAIVED.
- -------------------------------------------------------------------------------
- - Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
the life expectancy or the joint-and-last survivor life expectancy of you and
your beneficiary. These distributions must be free from penalty under the
Code.
- - Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
- - Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of
the Code and deferred compensation plans under Section 457 of the Code. The
waiver also applies to certain returns of excess contributions made to these
plans. In all cases, the distributions must be free from penalty under the
Code.
- - Redemptions due to death or disability.
- - Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
19
<PAGE> 20
- - Redemptions made pursuant to the Fund's right to liquidate your account if you
have less than $100 invested in the Fund.
- - Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
- - Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased and will result in lower annual distribution
fees. If you exchanged Class B shares into the Fund from another John Hancock
fund, the calculation will be based on the time you purchased the shares in the
original fund. The Fund has been advised that the conversion of Class B shares
to Class A shares should not be taxable for Federal income tax purposes and
should not change a shareholder's tax basis or tax holding period for the
converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
- -------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for them and what
you receive for them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment for up to seven days or
longer, as permitted by Federal securities laws.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
BY TELEPHONE All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the Exchange is closed.
Investor Services employs the following procedures to
confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer
identification number applicable to the account and other
relevant information may be requested. In addition,
telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last thirty
days. A check will be mailed to the exact name(s) and
address shown on the account.
- ---------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
If reasonable procedures, such as those described above,
are not followed, the Fund may be liable for any loss due
to unauthorized or fraudulent telephone instructions. In
all other cases, neither the Fund nor Investor Services
will be liable for any loss or expense for acting upon
telephone instructions made in accordance with the
telephone transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that
are in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times, you
should consider placing redemption requests in writing or
use EASI-Line. EASI-Line's telephone number is
1-800-338-8080.
- ---------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account, and
a fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account,
and the funds are usually collectable after two business
days. Your bank may or may not charge a fee for this
service. Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
attached to the Prospectus.
- ---------------------------------------------------------------------------------
IN WRITING Send a stock power or "letter of instruction" specifying
the name of the Fund, the dollar amount or the number of
shares to be redeemed, your name, class of shares, your
account number and the additional requirements listed below
that apply to your particular account.
- ---------------------------------------------------------------------------------
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
--------------------------------- --------------------------------------------
<S> <C> <C> <C>
Individual, Joint Tenants, Sole A letter of instruction signed (with titles
Proprietorship, Custodial where applicable) by all persons authorized
(Uniform Gifts or Transfer to to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaran-
teed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized
to act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
Trustee(s) with the signature(s) guaranteed.
(If the Trustee's name is not registered on
your account, also provide a copy of the
trust document, certified within the last 60
days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- ---------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less, John
Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that the institution meets
credit standards established by Investor Services: (i) a bank; (ii) a securities
broker or dealer, including a government or municipal securities broker or
dealer, that is a member of a clearing corporation or meets certain net capital
requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
</TABLE>
- -------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- -------------------------------------------------------------------------------
21
<PAGE> 22
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- -------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your stock
power or a letter of instructions. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds less than $100 (except accounts under retirement plans) and to mail the
proceeds to the shareholder, or the transfer agent may impose an annual fee of
$10.00. No account will be involuntarily redeemed or additional fee imposed, if
the value of the account is in excess of the Fund's minimum initial investment
or if the value of the account falls below the required minimum as a result of
market action. No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by further purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
- ---------------------------------------------------------------------------------
</TABLE>
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A, whether or not they have been so designated.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund that are subject to a CDSC may be exchanged
into Class
B shares of another John Hancock fund without incurring the CDSC; however, these
shares will be subject to the CDSC schedule of the shares acquired (except that
exchanges into John Hancock Short-Term Strategic Income Fund, John Hancock
Limited-Term Government Fund and John Hancock Adjustable U.S. Government Trust
will be subject to the initial fund's CDSC). For purposes of computing the CDSC
payable upon redemption of shares acquired in an exchange, the holding period of
the original shares is added to the holding period of the shares acquired in an
exchange. However, if you exchange Class B shares purchased prior to January 1,
1994 for Class B shares of any other John Hancock fund, you will be subject to
the CDSC schedule in effect on your initial purchase date.
You may exchange Class B shares of the Fund into shares of a John Hancock money
market fund at net asset value. However, you will continue to be subject to the
same CDSC upon redemption.
The Fund reserves the right to require you to keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted to
execute a new exchange. The Fund may also terminate or alter the terms of the
exchange privilege, upon 60 days' notice to shareholders.
22
<PAGE> 23
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares in another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
23
<PAGE> 24
IN WRITING
1. In a letter, request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares reinvested in
shares of any John Hancock fund that is otherwise subject to a sales charge
as long as you reinvest within 120 days from the redemption date. If you paid
a CDSC upon a redemption, you may reinvest at net asset value in the same
class of shares from which you redeemed within 120 days. Your account will be
credited with the amount of the CDSC previously charged, and the reinvested
shares will continue to be subject to a CDSC. For purposes of computing the
CDSC payable upon a subsequent redemption, the holding period of the shares
acquired through reinvestment will include the holding period of the redeemed
shares.
- -------------------------------------------------------------------------------
IF YOU REDEEM SHARES OF THE FUND, YOU MAY
BE ABLE TO REINVEST ALL OR PART OF THE
PROCEEDS IN THE FUND
OR ANOTHER JOHN HANCOCK
FUND WITHOUT PAYING AN ADDITIONAL SALES
CHARGE.
- -------------------------------------------------------------------------------
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, the account number and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH
IRS REGULATIONS.
- -------------------------------------------------------------------------------
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
24
<PAGE> 25
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares, because you may be
subject to initial sales charges on your purchases of Class A shares or to a
CDSC on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be automatically withdrawn each month from
your bank for investment in Fund shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program plan at any
time.
4. There is no charge to you for this program, and there is no cost to the Fund.
5. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
- -------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
- -------------------------------------------------------------------------------
2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
RETIREMENT PLANS
1. You may use the Fund as a funding medium for various types of qualified
retirement plans, including Individual Retirement Accounts, Keough Plans
(H.R. 10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax
Sheltered Annuity Retirement Plans (403(b) Plans) and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of the above
plans is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and 457 Plans will be accepted without an initial minimum
investment.
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INVESTMENTS, TECHNIQUES AND RISK FACTORS
Unless otherwise specified, each of the Fund's investment practices described in
this section and in the Statement of Additional Information is deemed to be a
fundamental policy and may not be changed without shareholder approval.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional income, the Fund may lend, to broker-dealers or to federally insured
banks or savings and loans, portfolio securities amounting to not more than
33 1/3% of its total assets taken at current value. The Fund may also enter into
repurchase agreements. In a repurchase agreement, the Fund buys a security
subject to the right and obligation to sell it back to the issuer at the same
price plus accrued interest.
These transactions must be fully collateralized at all times. The Fund may
reinvest any cash collateral in short-term highly liquid debt securities.
However, these transactions may involve some credit risk to the Fund if the
other party should default on its obligation and the Fund is delayed in or
prevented from recovering the collateral. Securities loaned by the Fund will
remain subject to fluctuations of market value. Repurchase agreements maturing
in more than seven (7) days will be subject to the Fund's restriction regarding
illiquid securities.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. Short-term trading of fixed-income securities
should not increase direct transaction costs since fixed-income securities are
normally traded on a principal basis without brokerage commissions. Short-term
trading may have the effect of increasing portfolio turnover rate. The Fund may
engage in short-term trading in response to changes in interest rates or other
economic trends and developments, or to take advantage of yield disparities
between various securities in which the Fund may invest in order to improve
income. A rate of turnover of 100% would occur if the value of the lesser of
purchases and sales of portfolio securities for a particular year equaled the
average monthly value of portfolio securities owned during the year (excluding
short-term securities). A high rate of portfolio turnover (100% or more) may,
under certain circumstances, make it more difficult for the Fund to qualify as a
regulated investment company under the Code. The Fund's portfolio turnover rate
is set forth in the table under the caption "Financial Highlights."
ILLIQUID AND RESTRICTED SECURITIES. The Fund may invest up to 10% of its total
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, certain over-the-counter options, certain stripped
mortgage-backed securities, certain restricted securities and securities not
readily marketable.
SECURITIES TRANSACTIONS SUBJECT TO DELAYED SETTLEMENT. The Fund may from time
to time commit to purchase securities for which the normal settlement date
occurs later than the settlement date which is normal for U.S. Treasury
obligations. The payment and interest rate received on such securities are fixed
at the time the buyer enters into the commitment. Although the Fund will only
enter into
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commitments to purchase such securities with the intention of actually acquiring
the securities, the Fund may sell these securities before the settlement date.
Such securities can involve a risk that the yields available in the market when
delivery takes place may be higher than those obtained in the transaction
itself. There are no limitations on the percentage of the Fund's assets which
may be invested in such securities. However, it is not expected that at any one
time more than 10% of the Fund's assets would be so invested.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a forward or
"when-issued" basis. When the Fund engages in when-issued transactions, it
relies on the seller or the buyer, as the case may be, to consummate the
transaction. Failure to consummate the transaction may result in the Fund's
losing the opportunity to obtain an advantageous price and yield. Although the
Fund is not limited to the amount of government securities for which it has such
commitments, it is expected that under normal circumstances not more than 10% of
the Fund's total assets will be committed to such purchases.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS. The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. The Fund will only enter into covered rolls. A "covered roll" is a
specific type of dollar roll for which there is an offsetting cash position or a
cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements which involve the sale of a security by the Fund to a bank or
securities firm and its agreement to repurchase the instrument at a specified
time and price plus an agreed amount of interest. The Fund will use the proceeds
to purchase other investments. Reverse repurchase agreements are considered to
be borrowings by the Fund and as an investment practice may be considered
speculative.
Thus, the Fund will enter into a reverse repurchase agreement only when the
Adviser determines that the interest income to be earned from the investment of
the proceeds is greater than the interest expense of the transaction. To
minimize various risks associated with reverse repurchase agreements, the Fund
will establish and maintain with the Custodian a separate account consisting of
cash or liquid, high grade debt securities in an amount at least equal to the
repurchase prices of the securities (plus any accrued interest thereon) under
such agreements. Although the Fund's investment restrictions provide that the
Fund may not enter into reverse repurchase agreements exceeding in the aggregate
33 1/3% of the value of its total net assets (including for this purpose other
borrowings of the Fund), this limitation shall not exceed 20% of the Fund's
total assets. The Fund will enter into reverse repurchase agreements only with
selected registered broker/dealers or with federally insured banks or savings
and loan associations which are approved in advance as being creditworthy by the
Trustees. Under procedures established by the Trustees, the Adviser will monitor
the creditworthiness of the firms involved.
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OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy options contracts on debt
securities and interest rate futures contracts and buy and write (sell) options
on such futures contracts. Options and futures contracts are bought and sold to
manage the Fund's exposure to changing interest rates and security prices. Some
options and futures strategies, including selling futures and buying puts, tend
to hedge the Fund's investment against price fluctuations. Other strategies,
including buying futures and buying calls, tend to increase market exposure.
Options and futures may be combined with each other or with forward contracts in
order to adjust the risk and return characteristics of the overall strategy.
The Fund may invest only in put or call options which are traded on a national
securities exchange (an "Exchange"). The Fund may purchase put options on debt
securities to protect its holdings in an underlying or related security against
a substantial decline in market value. Securities are considered related if
their price movements generally correlate to one another. The Fund may also
purchase call options on debt securities to protect against substantial
increases in prices of securities the Fund intends to purchase pending its
ability to orderly invest in such securities. The Fund may sell put or call
options it has previously purchased, which could result in a net gain or loss
depending on whether the amount received on the sale is more or less than the
premium and other transaction costs paid on the purchase of the put or call
option which is sold. The Fund will not invest in a put or call option if as a
result the amount of premiums paid for such options then outstanding would
exceed 10% of the Fund's total assets.
The Fund may engage in the sale of interest rate futures contracts and call
options thereon and the purchase of put and call options on such futures only as
a hedge against changes in the general level of interest rates. The sale of an
interest rate futures contract obligates the seller to deliver the specific type
of debt security called for in the contract at a specified future time and at a
specified price. The Fund would sell an interest rate futures contract in order
to continue to receive the income from a long-term debt security, while
endeavoring to avoid part or all of the decline in market value of that security
which would accompany an increase in interest rates. Futures contracts may be
purchased only to close an existing short position in a futures contract.
In addition, the Fund may purchase and write call options and purchase put
options on futures contracts which are traded on a securities exchange or a
Board of Trade and enter into closing transactions with respect to such options
to terminate an existing position. The Fund may use options on futures contracts
in connection with hedging strategies. Generally, these strategies would be
employed under the same market conditions in which the Fund uses put and call
options on debt securities. The Fund may hedge up to the full value of its
portfolio through the use of options on futures and the sale of futures;
provided, however, that the Fund may not sell futures contracts or purchase or
sell related options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures and related options positions and the
amount of premiums paid for related options (measured at the time of investment)
would exceed 5% of the Fund's net assets. When the Fund purchases a futures
contract or a call option on a futures contract,
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<PAGE> 29
an amount of cash or U.S. Government securities equal to the market value of the
futures contract will be deposited in a segregated account with the Fund's
custodian to collateralize the Fund's position.
The Fund is authorized to, but presently does not intend to, engage in certain
investment techniques involving the sale of covered call and secured put options
for the purpose of generating additional income. (See the Statement of
Additional Information for a discussion of these techniques.) In addition, the
Fund will not engage in such transactions without first having given
shareholders written notice at least 60 days in advance thereof.
Options and futures can be volatile investments and involve certain risks. If
the Adviser applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower the Fund's return. The
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market. Options and
futures do not pay interest, but may produce capital gains or losses.
INDEXED SECURITIES. The Fund may invest in indexed securities. The interest
rate or, in some cases, the principal payable at the maturity of an indexed
security may change positively or inversely in relation to one or more interest
rates, financial indices or other financial indicators ("reference prices"). An
indexed security may be leveraged to the extent that the magnitude of any change
in the interest rate or principal payable on an indexed security is a multiple
of the change in the reference price. Thus, indexed securities may decline in
value due to adverse market changes in reference prices.
The indexed securities purchased by the Fund may include interest only ("IO")
and principal only ("PO") securities, floating rate securities linked to the
Cost of Funds Index ("COFI floaters"), other "lagging rate" floating rate
securities, floating rate securities that are subject to a maximum interest rate
("capped floaters"), leveraged floating rate securities ("super floaters"),
leveraged inverse floating rate securities ("inverse floaters"), dual index
floaters and range floaters.
RISKS OF MORTGAGE-BACKED AND INDEXED SECURITIES. Different types of derivative
debt securities are subject to different combinations of prepayment, extension,
interest rate and/or other market risks. Conventional mortgage pass-through
securities and sequential pay CMOs are subject to all of these risks, but are
typically not leveraged. PACs, TACs and other senior classes of sequential and
parallel pay CMOs involve less exposure to prepayment, extension and interest
rate risk than other mortgage-backed securities, provided that prepayment rates
remain within expected prepayment ranges or "collars."
The risk of early prepayments is the primary risk associated with mortgage IOs,
super floaters and other leveraged floating rate mortgage-backed securities. The
primary risks associated with COFI floaters, other "lagging rate" floaters,
capped floaters, inverse floaters, POs and leveraged inverse IOs are the
potential extension of average life and/or depreciation due to rising interest
rates. The residual classes of CMOs are subject to both prepayment and extension
risk.
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<PAGE> 30
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates.
RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. The
risks associated with the Fund's transactions in options, futures and other
derivative instruments may include some or all of the following:
Market Risk. Options and futures transactions, as well as other derivative
instruments, involve the risk that the applicable market will move against the
Fund's derivative position and that the Fund will incur a loss. For derivative
contracts other than purchased options, this loss may exceed the amount of the
initial investment made or the premium received by the Fund. Investments in
mortgage-backed and indexed securities are subject to the prepayment, extension,
interest rate and other market risks described above.
Leverage and Volatility Risk. Derivative instruments may increase or leverage
the Fund's exposure to a particular market risk, which may increase the
volatility of the Fund's net asset value. The Fund may partially offset the
leverage inherent in derivative instruments by maintaining a segregated account
consisting of cash and liquid, high grade debt securities, by holding offsetting
portfolio securities or currency positions or by covering written options.
Correlation Risk. A Fund's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative instrument and the hedged asset. Imperfect correlation may be caused
by several factors, including temporary price disparities among the trading
markets for the derivative instruments, the assets underlying the derivative
instrument and the Fund's portfolio assets.
Credit Risk. Over-the-counter instruments involve a risk that the issuer or
counterparty will fail to perform its contractual obligations.
Liquidity and Valuation Risk. Some derivative instruments are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, an exchange may suspend or limit
trading in an exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. The staff of the SEC takes the
position that certain over-the-counter options are subject to the Fund's 10%
limit on illiquid investments. The Fund's ability to terminate over-the-counter
derivative instruments may depend on the cooperation of the counterparties to
these instruments. For derivative instruments that are not heavily traded, the
only source of price quotations may be the selling dealer or counterparty.
LEVERAGE. The use of mortgage dollar rolls and reverse repurchase agreements
involves leverage. Leverage allows any investment gains made with the additional
monies received (in excess of the costs of the mortgage dollar roll or reverse
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repurchase agreement) to increase the net asset value of the Fund's shares
faster than would otherwise be the case. On the other hand, if the additional
monies received are invested in ways that do not fully recover the costs of such
transactions to the Fund, the net asset value of the Fund would fall faster than
would otherwise be the case.
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JOHN HANCOCK JOHN HANCOCK
U.S. GOVERNMENT TRUST U.S. GOVERNMENT
TRUST
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR CLASS A AND CLASS B SHARES
John Hancock Funds, Inc. PROSPECTUS
101 Huntington Avenue MAY 15, 1995
Boston, Massachusetts 02199-7603
CUSTODIAN A MUTUAL FUND SEEKING TO OBTAIN
Investors Bank & Trust Company AS HIGH A LEVEL OF INTEREST
24 Federal Street INCOME CONSISTENT WITH
Boston, Massachusetts 02110 SAFETY OF PRINCIPAL.
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information 101 HUNTINGTON AVENUE
For Telephone Exchange call 1-800-225-5291 BOSTON, MASSACHUSETTS 02199-7603
For Investment-by-Phone TELEPHONE 1-800-225-5291
For Telephone Redemption
For TDD call 1-800-554-6713
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